But the rise of China’s tech industry put it squarely in the crossfire of the trade war. The Trump administration has accused China of stealing intellectual property and unfairly subsidizing companies in strategic fields, including semiconductors, artificial intelligence and autonomous driving. In May, the U.S. blacklisted Huawei Technologies Co., preventing the telecom giant from buying American components, and is considering doing the same to a swath of startups.

The trade war gives investors one more reason for caution. Valuations had already grown vertiginous. High-profile startups such as smartphone-maker Xiaomi Corp. and delivery giant Meituan Dianping saw their stocks tumble after they went public, reinforcing the impression that private-market valuations had gotten out of hand.

So-called sharing economy startups have also tested the patience of their investors. Companies like Didi, Meituan and bike-sharing provider Ofo blitzed the market with heavy subsidies to grab market share from rivals, making up for their losses with venture money. Now there’s skepticism that many such companies will ever turn a profit.

“You’re really reaching the end of the shared economy -- this idea of let’s give away services for free and make up for it in volume,” Rieschel said. “Some companies -- Didi is the classic case -- are just not showing any ability to become profitable.”

Eoin Treacy's view

Do visionaries appear at the just the right time, or do they get the opportunities to turn their ideas into a semblance of reality because liquidity is cheap and abundant? A confluence of technological innovations can coalesce to create wonderful new products like the iPhone. Alternatively, we can find new ways of doing things because the cost of running interminable losses is so low relative to the potential pay-out that any venture can secure funding. The latter group have clearly dominated in this cycle which tells us liquidity is the dominant reason behind the surge in valuations for private companies. 

One of the bigger bubbles in this cycle is in the private equity sector which is simply an offshoot of shadow banking. It has not popped yet and may even get a boost from interest rate cuts but it is the sector most worth watching for recession risk. 

The primary challenge for China’s tech companies is they have so far had a difficult time competing outside the safety net of the great firewall. However, their valuations assume they are already globally significant companies.