Chips and EVs are bright spots in China’s tech funding slump
Funding for China’s technology and internet start-ups halved last year amid pandemic controls and regulatory uncertainty, but the new energy and semiconductor industries are expected to be stand-out performers this year after landing the biggest deals of 2022.
Investment in China’s new economy sector, made up of tech-driven industries, slipped 46 per cent to 745 billion yuan (US$110 billion) last year, according to market intelligence firm ITjuzi. Data from CB Insights shows a similar trend, with venture funding in the country down by more than half to US$47 billion in 2022.
Big Tech companies, once major drivers of tech and internet funding, have grown more prudent. Tencent Holdings and ByteDance backed 93 and 21 companies last year, respectively, down significantly from the 259 and 64 deals they made in 2021, according to data compiled by local tech blog LeiNewspaper.
“The capital market was hesitant under the shadow of the pandemic,” said ITjuzi analyst Zhi Jiaming.
A combination of China’s economic slowdown, Covid-19 restrictions that were only eased last month, and a regulatory crackdown on the tech sector have dampened investor confidence. Beijing pledged in 2020 to prevent the “disorderly expansion of capital”, which was followed by two years of unprecedented regulatory crackdowns on the country’s biggest tech firms, covering business activities from content and data security to mergers and acquisitions.
The business environment is expected to improve this year. The Central Economic Work Conference, an annual meeting of China’s top leadership that concluded on December 16, said that the government will look to internet platforms to play a role in reviving the slowing Chinese economy.
The good news for investors in 2023 is “the ease of pandemic controls and Beijing’s vow to make economic development a priority”, said Wu Meimei, a senior analyst at ITjuzi. “But the tech giants will continue to reduce their external investment this year, and it takes time for the economy to recover” before investor confidence recovers.
Wu expects tech start-up investment to revive in the second half this year, but the distribution depends on how each industry will perform.
New energy and semiconductors were the most popular industries for investors in 2022. Among the top 30 companies that raised the largest sums of money, 13 were new energy and electric car makers, followed by semiconductor and new material start-ups, of which there were seven, according to ITjuzi.
One of the biggest pulls for 2022 was from Aion, an electric vehicle marque of Guangzhou Automobile Group, which raised 20.9 billion yuan in two rounds. The consumer credit unit of Ant Group also saw a significant funding boost last year, raising its capital base by 10.5 billion yuan, a move to allow it to increase its loan balance.
Ant Group is the fintech affiliate of Alibaba Group Holding, owner of the South China Morning Post.
New energy and semiconductors are both important strategic industries for China. Beijing is seeking to become more self-reliant in producing advanced chips amid a tech rivalry with the US, and it has laid out a goal of reaching peak carbon emissions by 2030.
The government has introduced multiple financial incentives and tax policies to empower these industries. One policy change includes extending a tax exemption for electric vehicle purchases through the end of this year. Local governments have also offered cash incentives and policy support to semiconductor firms in the face of US sanctions.
“The industries that converge with the nation’s direction will be worth more attention, including new energy and semiconductors,” Wu said, adding that healthcare is another industry to watch out for in the post-pandemic era. South China Morning Post
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