Semiconductors and EVs will buck against the slump in 2023 after funding halved for China’s tech start-ups last year
- Funding for Chinese tech start-ups fell 46 per cent last year to US$110 billion, but improved business environment suggests more deals this year
- The biggest funding rounds were in semiconductors and new energy, strategically important areas expected to maintain momentum through 2023
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.
“The capital market was hesitant under the shadow of the pandemic,” said ITjuzi analyst Zhi Jiaming.
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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.
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“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.