China’s internet entrepreneurs had the world at their feet. What changed?

To encourage what it termed “mass entrepreneurship and innovation”, Beijing was prepared to take action.

The figurative red carpet was laid out in rapid fashion to transform the Chinese economy and its society through the internet, with financial resources, tax incentives and policies designed to spur activity.

As the money flowed, so too did the ambitions of budding entrepreneurs.

But what appeared to be a blazing furnace of enthusiasm was more like a dying ember. In the years since, China’s start-up environment has undergone drastic changes, with tens of thousands of entrepreneurs like Zhang caught in the middle.

Those most deeply affected came from the finance, education, gaming, technology and internet sectors.

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“The tailwind for internet entrepreneurs ebbed in Xi Jinping’s second term: as he started to dominate the policy agenda, government support overwhelmingly favoured ‘hard tech’ like semiconductors and AI,” said Xu Tianchen, an economist with the Economist Intelligence Unit.

These issues were further compounded by rising tensions between the US and China.

The trade war launched by the Donald Trump administration in the summer of 2018 escalated a more measured competition into an all-out rivalry.

“Even if they lacked preferred access to domestic capital markets,” Xu said, “start-ups could still be financed by international investors and listed overseas. Now that conduit has diminished, with global funds withdrawing their footprint in China.”

Huang Panlong was another entrepreneur seeking his fortune at Wuzhen that year, with his education app in full flush as the tutoring industry experienced remarkable growth. The subsector was already worth hundreds of billions of dollars, and on track to accumulate even more value.

“The dividend of the internet sector has passed,” he said. “The sector needs to be regulated, but it has also lost its efficiency and empowering advantages.”

Following in the footsteps of New Oriental, a Nasdaq-listed Chinese tutoring giant that shifted its business to online streaming, Huang started a new business selling agricultural products to piggyback on the country’s rural revitalisation drive – but that was no smooth sailing, either.

His team encountered resistance from local tax authorities, and ended up receiving a big-ticket fine.

“Small and medium-sized business starters are like orphaned children, completely on their own,” Huang said. “They have to struggle for survival in the early stages, and it’s only when they achieve certain results that they gain recognition at the national policy level.

“Following the conventional path can often result in being crushed by large corporations due to resource monopolies and franchising,” he said, echoing a sentiment shared by many entrepreneurs in China. “If you have a stable job, it’s best not to start a business now.”

Leo Zhou, another internet tutoring entrepreneur who courted investment at the 2017 conference, has transitioned to the Internet of Things, a “safer” arena that still has the blessing of the authorities.

Through that transition, he has noticed a palpable deflation in zeal for starting new businesses.

“In the past, maybe eight or nine out of 10 entrepreneurs carried great enthusiasm,” Zhou said. “Now, maybe only three out of 10.

“In this challenging environment, the number of projects is on the decline, leading to a drop in project profits as well. It’s essentially a state of neijuan [“involution”, a feeling of hopelessness driven by unfulfilled expectations], and the competition you face is quite intense.”

China’s third-quarter investments in the internet sector plunged by 36.4 per cent year on year to US$1.36 billion after a steep drop of 70 per cent year on year in the second quarter, according to the China Academy of Information and Communications Technology, a state-backed think tank in Beijing.

The number of investment deals dropped 54 per cent to 210, following a 60.9 per cent fall from the second quarter.

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Of those sections of the economy hit hardest by the pandemic, the private sector suffered most. From January to September this year, private investment dropped 0.6 per cent from the year before, and its proportion in the nation’s total fixed-asset investment declined to 51.3 per cent from 55.1 per cent a year earlier.

Wang Tao, chief China economist of Swiss investment bank UBS, attributed the fall of venture investment to domestic regulations and the US-China tech war.

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“Due to US restrictions, many venture capital firms have been forced to restructure their China presence or lower their investment,” she said at a seminar held by Renmin University on Wednesday.

Those restrictions have only got more stringent. Since last year, barriers to the tech trade have been reinforced, with legislation targeting semiconductors, microelectronics, quantum technologies and artificial intelligence, and hundreds of Chinese companies newly added to a US trade blacklist.

The subsequent chilling effect was stark, as foreign-funded tech firms accelerated their withdrawal from the China market and investment dwindled.

US private equity and venture capital investments in China dropped by around 76 per cent, year on year, to US$7.02 billion in 2022, according to S&P Global Market Intelligence data published in February.

With that pivot has come a profound re-emphasis on security. At this year’s WIC, which raised the curtain on Wednesday and concluded Friday, banners hailed the establishment of an “Inclusive and Resilient Digital World”, with breakout sessions on topics like the inherent risks of artificial intelligence.

Many of the tycoons present in 2017 are now absent, and few delegates from Western countries could be found in the official list of participants.

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Zhang, the Shanghai-based entrepreneur, is not quite convinced. He said he believes the current business environment is far more challenging than it was in 2017.

“Most start-ups nowadays are either struggling to stay afloat or on the road to bankruptcy.”

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His own project eventually fell through after losing all three of his major clients during China’s crackdown on internet finance.

“My advice is, if you have a job, keep working. If you don’t, yet can manage to get by, consider taking a break.”

But some of that old animal spirit still remains. Despite the present difficulties, Zhang refused an offer to work for a state-owned firm, saying entrepreneurship runs deep in his veins.

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“I have no way back,” he said. “For the sake of my dreams and the brothers I’ve fought alongside, I must hold out.”

Huang agreed, saying the start-up world is where he belongs. He is, even now, patiently waiting for new opportunities.

“Anyone who has ever had the notion to start a business,” he said, “loses the ability to be a corporate drone.”

Alibaba is the owner of the South China Morning Post.