Fundraising by China-focused private equity investors has fallen to its lowest level in 13 years, as early-stage backers of the country’s start-up scene grapple with Beijing’s tech crackdown and zero-Covid policies.

Venture capital and private equity funds concentrating on the Greater China region raised just $1.7bn in the first quarter of 2022, according to estimates from industry data provider Preqin, down more than 90 per cent year on year. That marked the smallest haul since the depths of the global financial crisis in 2009.

The steep drop in fundraising by the type of early-stage investors who helped Alibaba and Tencent become global brands underscored growing uncertainty over how to operate in China.

Since the start of a regulatory clampdown by the country’s government last summer, top officials have discouraged disruptive profit-seeking by fast-growing start-ups and imposed stringent security reviews. These curbs have halted most offshore listings until Chinese regulators release more details on rules for foreign initial public offerings.

Fund managers said the sharp fall in fundraising reflected mounting difficulties faced by private investment groups — particularly foreign firms — as Beijing seeks greater oversight of markets.

“That is a significant change,” said William Bao Bean, a general partner at global venture capital firm SOSV, adding that early-stage foreign investment in China had entered a “time of uncertainty” after a rush of successful fund closures in the first half of 2021.

Investor concerns have been compounded by Chinese leaders’ stringent adherence to a zero-Covid policy, which has resulted in the more than five-week lockdown of Shanghai, the country’s financial capital, and caused severe economic disruption. Weijian Shan, whose private equity group PAG manages more than $50bn, said in a recent recorded video meeting that the actions of China’s leaders “have done real damage to the market and to the economy”.

President Xi Jinping reiterated his opposition to what regulators have branded the “disorderly expansion of capital” at a recent meeting of top Chinese Communist party officials. Xi told members of the politburo gathered in Beijing late last month that capital which only pursues profits without regulation or restraints would bring “immeasurable harm” to China and that rules were needed to guide its “healthy development.”

Regulatory power has been expanded to enable greater scrutiny of foreign investment, with a particular focus on “capital penetration,” or the ultimate source of funding for Chinese companies — particularly those that play a role in Beijing’s drive for technological independence.

“Strategic or sensitive sectors [in China] have not ever welcomed foreign investment,” said Bao Bean, “and that list has expanded.”