India’s unicorns were hot. China’s tech crackdown is making them hotter.

Naman Kejriwal
Published in
9 min readSep 9, 2021


For the last two decades, China has been the dominant story in the realm of the global economy and capital markets. The country’s immense growth altered the balance of world economic power.

The United States, which used to account for close to half of global GDP in 1960, has seen its share drop in global GDP to 25%, while China’s share has climbed close to 20% in 2020

It is beyond debate that China’s economy and markets have had a renaissance, cementing the country’s place as a leading economic power.

Private equity and venture capital funding in China has also been on the steady rise over the last decade, growing at a CAGR of 26% and 35% respectively between 2009 and 2020. Growth has been historic, and far outstripped other investment channels. At the end of July, China’s private equity and venture capital funds managed a total of 12.6 trillion yuan ($1.95 trillion), tripling from the end of 2016 and becoming the world’s second-largest.

Chinese tech companies raised a total of US$46bn on public markets (including both primary and secondary listings) since Jan 2020. The largest IPO was from Kuaishou, which raised US$6.2bn in Feb 2021. The largest US tech IPO during the same period would have ranked fifth when pitted against its Chinese peers.

However, tables turned drastically at the start of October 2020, as the regulatory onslaught started

Days before Alibaba’s (which is sometimes compared to Amazon) subsidiary Ant Group was set to raise up to $34 billion in an IPO which would have been the world’s largest public offering, beating the $29.4-billion listing of Saudi Aramco in late 2019, the Chinese government effectively canceled the IPO of Ant Financial. The government levied a multi-billion dollar antitrust fine against Alibaba, deleted its popular web browser from app stores, and Jack Ma, the founder of e-commerce giant Alibaba, went out of the public eye for weeks. The value of Ma’s business empire collapsed.

Since then, Canceled share sales, Ruined business models, Tech moguls brought to heel, became the new normal. Barely a day goes by without more news on the widening scope of Beijing’s crackdown on private enterprise.

The government then embarked on an “antitrust” push, fining Tencent (China’s biggest social media company) and Baidu (one of the top Chinese internet companies) — for various past deals. Leaders of top tech companies (also including ByteDance, the company that owns TikTok) were summoned before regulators and presumably berated.

Pony Ma, the Chairman, and CEO of Tencent, who “obediently” bowed down to the Chinese leadership, has lost even more money than the obstreperous Jack Ma in the recent crackdown. Tencent had $170 billion shaved off its value. That’s more than 10 Byju’s, India’s biggest startup, which is valued at $16.5 billion.

Food delivery app, Meituan suffered a similar rout in April of this year. Around $40 billion of its value was wiped out in a fortnight after China’s State Administration for Market Regulation (SAMR) opened an investigation into its “suspected monopolistic practices” and on the announcement of “new worker protection rules”.

Chinese Regulators were far from “done”, yet. Just days after Didi’s (China’s Uber) $4.4-billion initial public offering in the US, Chinese regulators announced they were reviewing the company on “national security grounds”, and started levying various penalties against it. Later banned the company from taking on new customers and ordered mobile stores to remove its apps.

In June 2021, the “worst-case became a reality” for the Education sector. China unveiled a sweeping overhaul of its $110 billion EdTech sector, under which all institutions offering tuition on school curriculum will be registered as non-profit organisations. Banning companies from making profits, raising capital or going public. New Oriental Education & Technology Group plunged as much as 40 percent in Hong Kong, extending the previous day’s record 41 per cent fall.

The Chinese government called video games “spiritual opium”, sending video game stocks plunging, and very recently China’s banking and insurance watchdog stepped up its regulation of online insurance companies.

China’s largest tech firms have shed at least $800 billion in market value since February. However, this is not new for China. Tracing a little back into the history, China led Europe in many respects in the 16th century, but the Emperor recognized (correctly) that the rising merchant class was a threat to his power and reined it in. This kept the Emperor the supreme power while European monarchies lost relative ground to the bourgeois.

This is different from the U.S. as it has slapped down a few of its corporate giants before — Microsoft, AT&T, Standard Oil — but ultimately it didn’t crush the industries these companies were a part of, China’s attack on its tech companies, in contrast, seems far more comprehensive; it’s not just attacking the biggest internet companies, it’s attacking the entire sector.

In August 2021, as China celebrates the 100th anniversary of the nation’s Communist Party, says crackdown on business will go on for years and released The 10-point plan, which runs to the end of 2025.

Outside China’s byzantine, opaque nexus of party, government, and big business, it’s very difficult to figure out what’s going on. That makes it very hard to figure out why it’s happening.

  1. Some observers see this as an antitrust campaign, similar to the ones going on in the U.S. or the EU. China’s leaders famously want to prevent the emergence of alternative centers of power. Ant Group and Tencent claim over a 90% share of China’s mobile payment market, allowing them to collect a vast amount of consumer data. Government frets about Fintech’s “information monopoly”
  2. Another factor could be consumer internet companies that China is penalizing have large degrees of foreign ownership. SoftBank is currently the largest shareholder in Alibaba with 25% of shares outstanding. Tencent’s largest shareholder is Prosus (30.99%), South Africa. SoftBank is Didi’s largest shareholder too (20%), while Uber owns another 13%.
  3. If Dan Wang was to be believed, China has changed the definition of Tech. It’s not technology that China is smashing — it’s particularly the consumer-facing internet. They probably looked at their consumer internet sector and decided that the link between that sector and geopolitical power had simply become too tenuous to keep throwing capital and high-skilled labor at it. This could be validated by the fact that Huawei, for example, still seems to enjoy the government’s full backing. The government is going hell-bent-for-leather to try to create a world-class domestic semiconductor industry, throwing huge amounts of money at even the most speculative startups and it’s still spending heavily on A.I.
  4. Data leakage to the U.S. — The US has long been a preferred location for Chinese tech listings thanks to its deep pool of funding and flexible listing rules, including allowing variable interest equity (VIE) structures. China has an enormous problem with Chinese companies launching IPOs in the U.S. Didi’s market cap dived more than 40% from $68.2 billion on June 30 — the day it debuted on the Nasdaq — to $39.82 billion on July 27. It recovered to around $48 billion by July 30 after The Wall Street Journal reported the company was considering going private to appease Chinese authorities. China plans to propose new rules that would ban companies with large amounts of sensitive consumer data from going public in the U.S. and Xi has personally announced a stock market initiative in Bejing. ByteDance, Hello, Qiniu, Soulgate, Daojia, Keep, LinkDoc, Ximalaya are among the few companies that have suspended or withdrawn their US IPO plans before/after the new rules.
  5. As always, experts have presented different interpretations of these events. Here is one such contrary view arguing that China’s actions against tech companies are done mainly with the interests of consumers in mind. High market concentration (the top players command over 80% market share) has allowed the largest platforms to adopt unfair practices. Big Tech misused the market power.
High Market Concentration in Various Internet Sectors

“Alibaba had required some merchants to either verbally agree or write in contracts that they would only, or mostly, sell their products on the company’s platforms instead of its rivals.” Startups had to either take funding from Alibaba or Tencent and, at times, were forced to do business with one or the other.

There were also increasing concerns over systemic risk in the financial system as the country’s household debt-to-income ratio shot past the pre-crisis level in the US.

Fintech’s facilitation of large amounts of loans without bearing the associated risk has alarmed regulators who are also worried about over-reliance on algorithms, lack of collateral for such lending as well as cybersecurity.

Education costs were also enormous and apparently, Chinese families spend an average of 120,000 yuan (US$17,400) a year on tutoring. 15% of income is spent on supplemental education services, and that’s just with one kid. Companies had highly aggressive and predatory practices. One of the aggressive marketing is as follows: “Does your shopping cart contain your child’s future? If you do not enroll, we will be educating your child’s competitors.” Now, as a parent — can you imagine what this message does to your psyche?

The reason cited for a crackdown on the ride-hailing App, DIDI was violations of personal data collection. Concerns are that the “Fundamental data”, that is, the patterns of movement of government officials, could be revealed.

Maybe CCP is just redrawing the boundaries within which private companies can operate for consumer welfare. But again — “Maybe”, as I said, it’s hard to figure out why it’s happening.

Private Equity/Venture Capital Funds forced to revise the China Strategy

Softbank’s profits dropped 40 percent year-on-year in the quarter ended June 2021 owing to the crackdown. Chinese firms accounted for 23 percent of SoftBank’s massive Vision Fund investment portfolio at the end of July. Son said that only 11 percent of Vision Fund investment has been directed to China since April 2021.

Every company is going to take a hit with large layoffs coming. We are all waiting for death.” said a Shanghai-based private equity (PE) investor.

The Chinese security regulator also vows to crack down on private funds. Yi said in the speech published on the CSRC website that “Private equity funds must return to the defined role of being private and supporting innovation and startups.”

Forty-three China-focused funds raised a total of $49 billion this year, less than 2020’s annual amount of $50 billion. The number of funds raised this year is less than a third of last year and a steep drop from the fundraising peak in 2016 and 2017 when over 1,100 funds were raised each year, the data showed.

Amongst all this chaos and hustle and bustle, India might emerge as a new favorite developing market for venture capital investors

The crackdown is making India a Lucrative Alternative; The above-average GDP growth, open economy, India’s strong public market sentiment, and the rapidly rising internet penetration point to promising prospects for its economy.

India added three ‘unicorns’ per month in 2021. Growth equity momentum has surged significantly, with $15 Bn in investments in H1 2021, 50% higher than the whole of 2020 and three times the deal value in the first half of 2020.

The value of venture deals in India surged to $7.9 billion in July, while China investments plummeted to $4.8 billion, according to data compiled by Preqin.

That’s the first time the South Asian nation has surpassed its larger neighbor on a monthly basis since 2013.*Caveats apply

Sectors like FinTech (CRED, PineLabs, Razorpay, and Zeta fundraises), Social, Assisted Commerce (Meesho, DealShare, Grofers massive capital raises), EdTech (Byju’s, Eruditus, UpGrad further fundraises and Byju’s continued M&A spree with Epic, Great Learning), and FoodTech (Swiggy’s mega fundraise around the Zomato IPO) saw maximum activity.

We at WaterBridge Ventures strongly believe that India’s Tech economy would contribute $750 Billion — $1 Trillion to GDP by 2030 (Read more about it here) and China’s crackdown will facilitate newer funds taking a maiden position in India, meanwhile, existing funds will double down their bets in the country.

Hope this piece gave you some food for thought. Thanks for reading, and happy investing.