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China Sees Fewer New Unicorn Startups Amid “Contractionary” Policies

Taiwan’s Central News Agency (CNA) recently reported on data from Shandong-based Chinese weekly newspaper Economic Observer, saying that China saw the emergence of only 15 new “unicorn companies” (startups valued at over $1 billion) during 2023. Meanwhile, the United States added 179 unicorns during the same time period.

Lu Ming, executive dean of the China Development Research Institute at Shanghai Jiao Tong University, noted a widening economic gap between China and the US in the digital sector. Although China ranked second globally in terms of number of unicorn companies, with a total of 316 such companies in 2023, the addition of only 15 new unicorns in 2023 represented a sharp decline compared with new unicorn formation in previous years.

Lu cited four reasons for the widening gap between China and the US: technology, talent, capital markets, and policy factors:

  • The US has a strong advantage in generative AI technology and innovation, particularly in language models trained on vast English content.
  • The US remains a talent hub.
  • Foreign capital markets are better at valuing the growth potential of emerging industries, attracting more investment. In contrast, China’s capital markets lack openness and inclusiveness.
  • “While the US government takes a more diversified approach to emerging trends, China sometimes introduces ‘contractionary’ policies. ‘[The Chinese government] is more sensitive to negative sentiments, and uses contractionary policies to avoid problems. This leads companies to become overly cautious, hampering their development and potentially creating vicious cycles.'”

The CNA article went on to say, “Although the [Economic Observer] report did not provide specific examples, China’s recent antitrust crackdown on platform companies and proposed regulations to tighten control over online games have been seen as ‘contractionary policies that suppress industries,’ affecting business expectations and economic growth. Officials have repeatedly stressed the need for caution in introducing contractionary or restrictive measures.”

Source: Central News Agency (Taiwan), March 11, 2024