China's wary VCs

Hi, this is Jane and Sarah in Hong Kong. China wants its tech founders to start building again. But first...Today’s must-reads:• China’s ove [View in browser]( [Bloomberg]( Hi, this is Jane and Sarah in Hong Kong. China wants its tech founders to start building again. But first... Today’s must-reads: • China’s [overhauling]( its tech and data regimes • Twitter [experienced its second outage in a week]( • Xi Jinping [views]( top battery maker CATL ‘with joy and worry’ Post-crackdown trauma China’s technology industry has had many reasons to celebrate lately. New video game releases are getting approved again (essential for Tencent Holdings Ltd. and NetEase Inc.), Didi Global Inc.’s ride-hailing service has [returned]( to mainland app stores and the worst of the Covid Zero restrictions are behind us. The Hang Seng Tech Index is up nearly 50% since late October, and on Monday, President Xi Jinping [stressed the importance of the private sector]( to China’s economy. We no longer hear Beijing cracking the regulatory whip on a daily basis, but echoes persist. The recent [disappearance]( of Bao Fan, a high-profile tech banker who helped mergers that created the Didi and Meituan of today, has only highlighted the risks. The question now, among tech entrepreneurs and investors we talked to, is how far to trust the sprouts of optimism. No one knows how long the friendlier attitude from China’s leaders toward tech and private enterprise will last. Might it be just a temporary measure — a necessary evil, as it were — to restabilize the economy? When China is back to firing on all cylinders, will there be room for high-growth startups, or will regulators once again frown upon the “disorderly expansion of capital?” As Hong Kong-based investor and founder Kenneth Lai put it, “Rome was not built in a day, and confidence cannot be built overnight.” Many entrepreneurs are uncertain. A third of Lai’s portfolio companies are actively planning to refocus their business on markets outside China. They still see a threat of a sudden policy U-turn. Ray Xiao, who co-founded an e-cigarette startup called Snowplus Tech in Shenzhen, is also looking outward. New regulations on his sector in China, including a ban on non-tobacco flavors, have forced the firm to close all 400 of its stores in the country. Xiao is bullish on growth opportunities in Southeast Asia, Russia and more moderately regulated markets like Canada. Going abroad is not without risks of its own — ongoing tensions between Beijing and Washington may force some to make unfortunate choices. Building in the US comes with the danger of sanctions, as Tiktok knows too well. And if China’s economy does bounce back, do you really want to be on the outside looking in? Uncertainty will remain for Chinese tech companies, said [Angela Zhang](bbg://people/profile/22105234), an expert on Chinese regulatory matters at the University of Hong Kong. “Investor confidence has been severely eroded in the past couple of years,” she said. “The regulatory pendulum could swing again.” Tech companies looking abroad will have to duck geopolitical risks, and those who stay in China will have to tiptoe around ever-changing regulatory red lines. There’s profit to be made either way, but no one should expect a smooth ride getting there. —[Jane Zhang](mailto:hzhang901@bloomberg.net) and [Sarah Zheng](mailto:szheng244@bloomberg.net) The big story The whereabouts of Bao Fan, China’s star banker for tech deals, are unknown. Read our [in-depth report]( on the reaction to his disappearance. Get fully charged A US court ruled that the government can [stop Twitter from releasing details in a spy report](. A Boston-based analytics company developed a sensor pinned to sports jerseys that [could help prevent injuries](. One of the most valuable satellite startups in the US, Astranis Space Technology, is preparing to [launch its first geostationary satellite](. The electric vehicle startup Lordstown Motors said it will have to delay further production of its debut EV [if it can't find a partner to share costs](. More from Bloomberg Listen: [Foundering: The John McAfee Story]( is a new six-part podcast series retracing the life, the myths and the self-destruction of a Silicon Valley icon. Subscribe for free on [Apple](, [Spotify]( or wherever you get your podcasts. Watch: [The Future With Hannah Fry]( explores the potential of life extension, emotionally sensitive computers and more in this Bloomberg Originals show. 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