Chinese venture investors who gained notoriety through massive consumer company IPOs in the United States are facing pressure to fundamentally alter their approach.

The need to modify their playbook for a more modern setting has grown in the last few years due to tighter rules in both China and the United States, strained relations between the two nations, and a downturn in the second-biggest economy in the world.

The conventional business strategy of prominent Chinese venture capital firms, such Sequoia and Hillhouse, entailed obtaining funding from institutional investors, pension funds, and other U.S. sources referred to as limited partners.

The funds were then invested in Chinese firms that subsequently pursued initial public offerings in the United States, yielding profits for their backers.

A protracted audit disagreement between Washington and Beijing was settled in 2022, lowering the possibility that Chinese businesses would have to remove themselves from U.S. stock markets.

However, in the wake of the controversy surrounding the massive Chinese ride-hailing company Didi’s U.S. offering in the summer of 2021, both nations are now paying closer attention to Chinese businesses hoping to list in New York.

Chinese authorities have placed more emphasis on supporting industrial growth, such as high-end manufacturing and renewable energy, than consumer-facing industries.

“Currently, many USD funds are shifting their focus to government-backed hard tech companies, which typically aim for A share exits rather than U.S. listings,” Liao said, noting that it aligns with Beijing’s preferences as well.