Investors put money in Chinese start-ups despite regulatory crackdown

BEIJING — Global investors put more money into Chinese start-ups in the third quarter, despite Beijing’s regulatory crackdown that’s paused a rush of Chinese IPOs in the U.S.

Venture capital investment in China rose in the July to September period from the prior quarter, bringing year-to-date totals to more than all of 2020, multiple data sources show.

The investor interest came even as the quarter began with an onslaught of regulation from Beijing. Just days after Chinese ride-hailing app Didi held its massive IPO in New York on June 30, Beijing ordered the company to suspend new user registrations during a security review. Didi shares have fallen more than 35% since the IPO.

A few weeks later, authorities abruptly ordered after-school tutoring companies to cut operating hours and banned investment from foreign capital in overseas listings. U.S.-listed shares of industry leaders like Tal Education plunged and are down more than 90% year to date.

“Global investors have certainly become very cautious,” Jason Hsu, chairman and CIO of Rayliant Global Advisors, told CNBC in late September. “I think it’s going to take a while for that cautious sentiment to reverse course.”

Since late July, China’s securities regulator has tried to calm foreign investors, while fund managers on the ground are tasked with explaining the developments to those overseas.

“China still needs foreign capital. I don’t think China’s own domestic capital will be sufficient to support this growth,” said Fan Bao, founder, chairman and CEO of China Renaissance Group, a fund manager and investment bank based in Beijing.

China has an agenda for how the economy and society will develop, in which capitalism is a “very important tool,” Bao said in an interview earlier this month. “But if, throughout the process, the outcome is not as intended, and even worse, the outcome is undesirable, in China, it will be cracked down on. That’s the bit people need to understand.”

However, his firm is still intent on raising U.S. dollars to make it easier for the many businesses that now want to list in Hong Kong, and Bao said it’s difficult to raise yuan since the Chinese economy isn’t as strong as it appears on the surface.