USA – China- EU – Who will win the AI race (part 3)2. February 2021
US investors are chasing China‘s tech companies
GGV Capital, an investor behind some of China’s most successful tech startups like ByteDance and Didi Chuxing, announced Thursday that it has closed a $ 2.5 billion financing round – the largest in its 20-year history.
The recent capital increase by the US and China-based venture capital firm comes at a time when domestic and international limited partners (LPs) looking to capitalize on Chinese tech growth are increasingly investing in VCs. According to Chinese and American media, Qiming Venture Partners, a Beijing-based VC firm that has already invested in the Meituan food delivery app and smartphone maker Xiaomi, has funded a new round of funding worth RMB 2.9 billion (approximately $ 448 million) after completing a $ 1.2 billion capital increase in September.
These deals are part of a trend: Foreign investors are increasingly investing money in China’s growing tech sector as the global economy slows. Investors and analysts pointed out that overseas LPs are optimistic about China’s tech startups after the boom in IPOs last year. The reason: In the meantime, China is gradually opening its financial market, which has made an investment much more attractive for international investors.
Two big fundraising deals
According to GGV, this financing round raised $ 1.46 billion for its GGV Capital VIII fund, $ 366 million for the GGV Capital VIII Plus fund, $ 610 million for its Discovery III fund and $ 80 million for its Entrepreneur VIII fund . GGV indicated that it will focus on investing in sectors like new retail, cloud-based business services and social media. It also expects to close a separate financing round of RMB 3.4 billion soon, bringing total assets under management to around RMB 9.2 billion.
The company did not disclose the names of its funders during this round. It had previously received funding from North American-based pension funds, asset management companies, and universities.
Qiming’s most recent round of funding was supported by two government-run advisory funds in Shanghai and Beijing, as well as several domestic insurance companies. The company’s $ 1.2 billion funding round, closed in September, was supported primarily by American university foundations and pension funds.
China‘s tech firms are becoming even more attractive to foreign investors
In 2020, Chinese US dollar funds raised 12% more money than the previous year, although the total capital flowing into the market decreased by almost 39%, according to data from PE Data, which tracks China’s VC activities.
US dollar fund exposure to Chinese VC firms increased in 2020 because the Chinese government relaxed its rules on foreign investment and because overseas LPs have much more confidence in the Chinese market, said Liu Xiaoqing, research director at Itjuzi, a Chinese VC activity database.
American LPs are finding Chinese tech firms increasingly attractive and the market is developing rapidly after some Chinese tech firms went public in 2020 and offer investors high returns. The largest Chinese tech IPOs last year included electric vehicle makers Xpeng and Li Auto, as well as gaming giant Netease’s double listing in Hong Kong of the challenging global Covid-19 epidemic and changing global environments.
The VC-supported Chinese video sharing app Kuaishou is preparing for what is likely to be the largest IPO since the pandemic. The company plans to raise around $ 5 billion on the Hong Kong Stock Exchange, which would translate into a market capitalization of up to $ 60.9 billion. The company was valued at $ 18 billion in a funding round in January 2018, meaning early investors expect a return of nearly 233%.
Biden loosens Trump’s braking maneuver
US investors’ interest in Chinese tech firms was curbed last year by Trump-era measures. Meanwhile, there were indications from the Biden administration that they could relax the excessively far-reaching and arbitrary restrictions on Chinese tech companies.
In memory of:
► In May 2020, the US Department of Labor advised the US state pension funds – major financiers of Chinese USD VC firms – against investing in Chinese companies.
►In November 2020, former US President Donald Trump signed an executive order banning American investments in companies related to the Chinese military from January 28, 2021.
►The smartphone manufacturer Xiaomi, China’s third largest telecommunications provider, and the Chinese chip manufacturer SMIC had blacklisted the Trump administration. The Biden government announced last week that it would postpone the investment ban on certain Chinese companies until May 27.
The rapidly increasing competitiveness of China can also be seen in the development of direct investment: According to a report by the United Nations Conference on Trade and Development, which was published over the weekend, China recorded direct investments of 163 billion dollars in 2020, overtaking the USA as the hottest FDI destination in the world to date.