China's Startup Landscape – Industries, Investment, and Incentive Policies 2025

China’s startup landscape has expanded significantly over the last decade and is quickly catching up with other major economies to become one of the world leaders in entrepreneurship, innovation, and investment.

Encouraged by government incentives and the promise of rapid growth and returns, overseas venture capital (VC) investment has poured into China over the past few years, which has fostered the second-highest number of “unicorn” companies in the world after the US. The development of startup companies – in particular, technology-based companies – is closely aligned with the Chinese government’s goals to foster the development of strategic and emerging industries, such as artificial intelligence, integrated circuits and semiconductors, and biotechnology, among others. In addition, fostering entrepreneurship may also help to alleviate underemployment, particularly among young people, which is another concern for the government.

For these reasons, China has rolled out various incentive and support policies for entrepreneurship, small businesses, and VC and angel investment.

Overview of China’s startup landscape

According to the Global Startup Ecosystem Index by StartupBlink, which assesses countries’ startup economies, China ranked 13th in the world and the first in East Asia in 2024. The top cities for startups in China were Beijing, Shanghai, and Shenzhen, with other major cities including Hangzhou, Guangzhou, Nanjing, Chengdu, Wuhan, and Changsha.

Given the relatively loose definition of a startup, there are no concrete figures on the number of startup companies in China. However, according to the Hurun Report, there were 340in 2024 (privately held startup companies with a valuation of over US$1 billion), with 56 new additions—24 more than the previous year’s total. Meanwhile, Chinese economist Ren Zeping estimates the total valuation of China’s unicorns in 2024 to be at RMB 8.4 trillion (approx. US$1,151.48 trillion).

Some major names in China’s startup space include Shein (e-commerce, valued at RMB 460 billion (approx. US$63.1 billion) in 2024), miHoYo (gaming, valued at RMB 160 billion (US$21.9 billion) in 2024), WeBank (fintech, valued at RMB 235 billion (US$32.2 billion) in 2024), and ByteDance (new media, valued at RMB 1.6 trillion (approx. US$214.1 billion).

Beyond the billion-dollar companies, the number of startups is likely in the tens of thousands. China’s National Bureau of Statistics states that in 2024, an average of 24,000 new companies were established every day, and the number of micro, small, and medium-sized enterprises (MSMEs) exceeded 53 million.

Among these were 14,600  “Little Giant” enterprises —national-level SMEs recognized under the “specialized, refined, distinctive, and innovative” (“”) initiative. These firms excel in niche sectors with strong R&D and advanced manufacturing capabilities. Nearly 90 percent are in manufacturing, and over 80 percent operate in strategic industries like integrated circuits and aerospace. In emerging fields such as AI and low-altitude aviation, there are nearly 5,000 such companies. One example is a Beijing-based firm producing quantum sensor-powered water monitors that enable real-time pollution detection, dramatically improving environmental response time.

China’s startups by industry

Startups in China are concentrated mostly in a handful of high-tech and innovative industries. These include high-end hardware, new vehicles, medicine and healthcare, enterprise services, software services, supply chain logistics, e-commerce, fintech, new media, and “new consumption” (new types of consumer behavior and consumer business models enabled by digital technology).

According to analysts, the largest proportion of unicorns was in biotechnology, new energy, and artificial intelligence, with around 15 percent of unicorns being in biotechnology and 13 percent in new energy. By market valuation, the largest sector by far was new media, which accounted for 45 percent of the total valuation of all unicorns in China, although this result may have been skewed by the inclusion of TikTok owner ByteDance, which is the single largest unicorn by valuation in both China and the world. This was followed by fintech, with fintech unicorns accounting for 30 percent of the total valuation.

Various high-tech sectors are also receiving significant attention in the startup space. According to IT Juzi, a startup database and information service provider, of the 260 companies in the new economy that were established and received financing at the end of 2024. Despite a decline in numbers, certain sectors like artificial intelligence and semiconductors have seen increased investment, with February 2025 witnessing 42 corporate-backed funding rounds, 11 of which were in the IT sector.

Projects that received funding in the IC industry, which is an important growth industry for the Chinese government, included dynamic random access memory (DRAM) chips, mobile chipsets, and semiconductor manufacturing equipment.

Notably, ChangXin Memory Technologies (CXMT) secured a RMB 10.8 billion(US$1.48 billion) funding round in March 2024, while mobile chip specialist Unisoc raised a total of RMB 6 billion (US$828 million) ahead of a potential IPO planned for 2025.

VC funding and investment

Investment in Chinese startups has been on the rise for the last decade, and interest in the Chinese market from venture capital firms has also increased. According to a report from Crunchbase, China surpassed the US as the number one destination for venture capital (VC) investment for the first time in the second half of 2018, although this was driven largely due to the large sum of funds raised by Ant Financial.

According to data from Statista, the number of new VC investments in China has risen steadily since 2010 and reached 5,208 investments worth a combined RMB 371 billion (approx. US$53.7 billion) in 2021. After over a decade of strong growth, VC investment in China has entered a cooling phase. According to data from China Bridge, total VC investment in the first three quarters of 2024 reached RMB 296.2 billion (approx. US$40.9 billion), representing a 37.69 percent year-on-year decline, while the number of deals dropped by 30.15 percent to 2,403. The slowdown became more pronounced in Q3, with investment volume falling over 63 percent year-on-year. Notably, even the IC sector—typically considered a priority area—has not been immune to the broader investment pullback.

Although the overall market sentiment remains cautious, leading VC firms still maintained relatively high investment activity, each making more than 80 deals over the year. These investments were largely concentrated in hard-tech sectors, including semiconductors, new energy, and advanced manufacturing.

Source: China Bridge Data

While US VC firms continue to dominate, Chinese VC firms have made significant strides in the industry. Notably, HongShan (formerly Sequoia Capital China) has emerged as a prominent player, managing approximately US$56 billion in assets. In 2024, HongShan successfully raised an RMB18 billion (US$2.5 billion) fund, the largest by a privately owned VC firm in China that year, to invest in technology startups.

Other leading Chinese VC firms include Qiming Venture Partners, which manages US$9.5 billion in assets and has invested in over 530 companies, including notable names like ByteDance and Meituan. MPCi (formerly Matrix Partners China) also stands out, having raised US$1.6 billion in 2023, marking the largest China-focused fund that year.

Profile of young entrepreneurs in China

According to the All-China Youth Federation and China International Youth Exchange Center’s report, over 90 percent of young entrepreneurs hold a bachelor’s degree or higher, indicating a highly educated entrepreneurial demographic.

In terms of funding, approximately 69 percent had startup capital of less than RMB 100,000 (approx. US$13,687), which mainly came from personal or family savings or loans from relatives and friends. Meanwhile, financing was mainly achieved through bank loans and partnerships.

The most common structures for a startup were sole proprietorships and partnerships.

On average, entrepreneurs start making a profit within three years of starting the company, and more than half of startups achieve significant expansion in the initial stage.

Finally, the entrepreneurs cited insufficient startup funds, social resources, and knowledge reserves as the main difficulties faced by young entrepreneurs.

Government incentives for startups

In 2015, the Chinese government announced a program to establish “Demonstration Bases for Mass Entrepreneurship and Innovation”, which aim to foster innovation and entrepreneurship by optimizing the policy system for innovation and entrepreneurship and building a number of low-cost, convenient, and open “maker spaces”, or incubators, for incentivizing innovation and entrepreneurship.

The plan called for the creation of new service platforms, such as “maker spaces”, that can effectively meet the needs of the public for innovation and entrepreneurship and have strong professional service capabilities.

It also encouraged the cultivation of angel investors and VC institutions and called for making investment and financing channels smoother.

The government has announced three different rounds of construction of these demonstration bases, and by the end of 2024.

Preferential tax policies for technology companies and small companies

The Chinese government has several preferential policies for supporting the establishment and operation of startups. There is also a vast range of preferential tax policies for micro, small, and medium-sized enterprises (MSMEs) and small and low-profit enterprises (SLPEs), which some startups may be eligible for (depending on factors such as their annual profits and the size of their workforce).

As of 2025, the preferential tax policies available for MSMEs and SLPEs include:

• Corporate Income Tax relief: All types of SLPEs —defined as enterprises with annual taxable income below RMB 3 million, fewer than 300 employees, as total assets under RMB 50 million—can enjoy a reduced corporate income tax (CIT) rate of 20 percent rate in combination with a reduction of 25 percent of their tax base, resulting in an effective CIT rate of 5 percent ;
• Value-Added Tax (VAT) relief relief: Small-scale VAT taxpayers, typically those with annual sales under RMB 5 million, enjoy a reduced VAT rate of 1 percent (down from 3 percent). In addition, businesses with monthly sales under RMB 100,000 (or quarterly sales under RMB 300,000) are exempt from VAT altogether.
• Individual Income Tax (IIT) incentives:  Sole proprietors and individually owned businesses benefit from a 50 percent reduction in the applicable IIT rate for the portion of annual taxable income not exceeding RMB 1 million.
• Surcharges: Small-scale taxpayers, SLPEs, and individually owned businesses could enjoy the reduction of “six taxes and two fees” by 50 percent of the tax amount.

Read more: China’s Tax Incentives for Small Businesses (Updated)

There are also tax incentives aimed at encouraging tech innovation, which many startups may be eligible for. These include:

• A reduced 15 percent CIT rate for high-tech and new technology enterprises (HNTEs); 
• A reduced 15 percent CIT rate for advanced technology service enterprises (ATSEs). ATSEs are also eligible for a zero VAT rate for the provision of certain offshore services.

China also provides a super deduction on R&D expenses, which has been further expanded and institutionalized in recent years to encourage enterprise innovation across sectors.

As of January 1, 2023, all qualified enterprises, regardless of size or industry (except tobacco manufacturing, lodging and catering, wholesale and retail, real estate, leasing and commercial services, and entertainment), can enjoy below preferential policy:

•  For R&D expenses that do not result in intangible assets, enterprises may claim an additional 100 percent deduction on top of the actual amount, effectively doubling the deductible portion of these expenses when calculating taxable income.
• For R&D expenses that result in intangible assets, the cost of the intangible assets can be amortized at 200 percent of their actual cost before CIT.

This unified policy replaced earlier differentiated rules that applied separately to technology SMEs, manufacturing firms, and other enterprises. Previously, only select sectors could enjoy the full 100 percent super deduction, while others remained at 75 percent.

This shift is expected to improve the efficiency of China’s innovation-driven economy by reducing administrative complexity and making tax incentives more accessible.

Read more: What Are the Tax Incentives in China to Encourage Technology Innovation? (updated)

Preferential policies and incentives for graduates

The Chinese government is hoping to get more university graduates into entrepreneurship in order to alleviate the high rates of youth unemployment.

In October 2021, the Office of the State Council published a set of guiding opinions on supporting employment and entrepreneurship of graduate students, which included policies such as increasing funding for innovation and entrepreneurship education, providing tax incentives for graduates who become self-employed in the year in which they have graduated, preferential tax policies for small enterprises, encouraging financial institutions to provide financial services to college students entrepreneurial projects, and increasing the maximum loan amount for graduate students, among others.

Meanwhile, in early 2022, the National Development and Reform Commission (NDRC), along with the Ministry of Education (MOE) and other government agencies, issued a notice on promoting the employment and entrepreneurship of graduate students, which included a List of Inclusive Policies to Support College Graduates' Entrepreneurship and Employment.. The list contains a range of preferential policies for graduate students to start their own businesses.

Key updated supportive measures include:

• Incubator access and rental support: Around 30 percent of the space in government-funded incubators and entrepreneurial platforms is free of charge to college graduates. In some regions, graduates who start businesses within these incubators may also qualify for rental subsidies.
• Tax incentives for self-employed graduates: College graduates engaged in individual businesses can receive a tax deduction of up to RMB 12,000 per household per year for three years from the month of registration. This applies to VAT, urban maintenance and construction tax, education surcharge, local education surcharge, and individual income tax (IIT). Local governments may raise this threshold by up to 20 percent.
• Entrepreneurship guarantee loans: Graduates starting their own businesses can apply for loans of up to RMB 200,000. For loans under RMB 100,000, or for those with excellent credit or government honors, collateral requirements may be waived. Eligible small and micro enterprises founded by graduates can apply for loans up to RMB 3 million.
• One-time startup subsidy: Graduates within two years of leaving school who either establish a small or micro enterprise for the first time or maintain individual operations for over one year are eligible for a one-time entrepreneurial subsidy. The exact subsidy standards are determined by provincial or municipal governments. The specific measures and amounts are determined by the municipal government.

Preferential tax policy for VC and angel investors

China offers preferential tax policies to support venture capital enterprises and individual angel investors who invest in early-stage technology startups. To qualify, the invested startups must employ no more than 300 people and have both total assets and annual sales revenue under RMB 50 million. Eligible investments may benefit from favorable tax treatment, provided they are held for at least two years.

These policies are in effect until December 31, 2027, in accordance with guidelines issued by the Ministry of Finance and State Tax Administration.

The specific policy for different types of companies and individuals is as follows:

• VC companies that have directly invested in technology-based startups or seed-stage companies through equity investment for a period of two years can deduct 70 percent of the investment amount from its taxable income in the year when the equity has been held for two years; if the amount is not enough for the deduction in the current year, it can be carried forward and deducted in the following tax year.
• For limited partnership VC enterprises that have directly invested in technology-based startups or seed-stage companies in the form of equity investment for a period of two years, the partners are eligible for the following deductions:
  • A legal entity partner can deduct 70 percent of the investment amount from the share of income received from the partnership; and
  • Individual partners can deduct 70 percent of the investment amount from the operating income that individual partners receive from the partnership.
• Angel investors who have directly invested in technology-based startups or seed-stage companies through equity investment for a period of two years may deduct 70 percent of the investment amount from the taxable income obtained from the transfer of equity.
  Furthermore, if an individual angel investor has invested in multiple technology startups, and one of them is liquidated, then the taxable income obtained by the investor from the transfer of equity to other startup technology companies can be deducted within 36 months from the date of liquidation. This is provided the angel investor has not already deducted 70 percent of the investment amount from the taxable income (of the startup being liquidated).

The future of China’s startup environment

China is home to a thriving startup scene, and its growth trajectory is expected to remain strong in the coming years. Startups in China benefit from direct access to one of the world’s largest and most dynamic consumer markets, as well as a vast, increasingly well-educated labor force. The government continues to provide robust support through subsidies, tax incentives, and targeted policies to nurture strategic and emerging industries critical to China’s long-term growth and global competitiveness.

However, the startup landscape is not without challenges. An increasingly unstable global economy and rising geopolitical tensions—particularly with the United States—are reshaping the external environment. In January 2025, the US implemented a comprehensive investment ban on Chinese firms in sectors such as artificial intelligence, semiconductors, and quantum computing. These restrictions limit the ability of Chinese startups to access US capital and collaboration opportunities.

Furthermore, Washington has tightened export controls on key semiconductor technologies, including high-bandwidth memory chips and chip-making equipment, in an effort to hinder China’s progress in developing next-generation tech.

In response, the Chinese government is expected to double down on efforts to strengthen homegrown innovation and support domestic startups, with a focus on achieving greater technological self-reliance and resilience.

In this evolving environment, foreign investors and startup ecosystem participants should closely monitor policy developments, investment trends, and strategic shifts within China’s innovation landscape. Those who understand the direction of government support and anticipate the next wave of opportunity will be best positioned to engage with China’s startups, whether as partners, funders, or collaborators, in shaping the future of global tech and innovation.