BEIJING, April 18 -- Investment in Chinese companies backed by venture capital declined in the first quarter of 2016, a new report has showed.

Economic concerns and a decline in global valuations have seen investors take a cautious, selective approach as Q1 2016 saw 25.5 billion U.S. dollars invested across 1,829 deals worldwide, down from 27.7 billion U.S. dollars and 1,907 deals in Q4 2015, according to the report by accounting firm KPMG and consulting firm CB Insights.

While the number of deals in China increased slightly from 78 in Q4 2015 to 85 in Q1, investment in the same time frame declined 45 percent to 4 billion U.S. dollars, around 40 percent of the record 10.2 billion U.S.dollars set in Q3 2015.

With most of the venture capital flowing to the service sector, a two-track economy is establishing itself in China.

Traditional industries to be adjusting to the realities of a slowdown while industries focusing on higher-value activities, including services, technology, healthcare and education seem very optimistic, the report said.

The Chinese economy expanded 6.7 percent in Q1 year on year, with the service sector growing 7.6 percent, outpacing agricultural and industrial sectors and accounting for 56.9 percent of the overall economy, up two percentage points from a year earlier, according to official data.

"In the future, we expect to see more buyout activities and consolidation in China. We also expect to see a lot more corporates setting up VC arms to make venture-type investments in order to get in the game and follow the lead of companies like Baidu, Alibaba and Tencent," said Lyndon Fung, a senior KPMG manager in China.