Investment in Chinese enterprises slumps in Q1 2019

Apr 02, 2019
US-China trade war and cloud over Chinese economy shaping weak investment environment

The funding pumped into Chinese enterprises in the first quarter of this year has fallen by nearly 50 percent from a year ago, as investors step back from taking risks on start-ups, the US-China trade war remains and a cloud hangs over the economy.

Unlisted companies have raised a little over $9 bn this year – down from $17.5 bn a year earlier, according to data compiled by Nikkei on yuan and dollar-denominated funds from corporations and venture capital firms. This will have a negative impact on the liquidity of the capital markets in China if the trend continues. 

The number of so-called infusions – the injection of investment into a company – surpassing $100 mn dropped to just over 20 this quarter from more than 30 a year ago. The funding started to dry up when the economic slowdown came into focus in the latter half of last year.

The picture compares significantly with last year, which marked the stock market debuts of billion-dollar unicorns. Coming off their successful investments, funds with deep pockets renewed their search for more start-ups. Fund-raising for unlisted companies peaked during the third quarter of last year at around $27 bn.

Investment throughout the whole of 2018 topped $80 bn, approaching the impressive US total of near $100 bn. During the final quarter, however, China’s gross domestic product grew by a relatively low 6.4 percent – a figure many in the West might dream of but for China was the slowest annual economic expansion in 28 years. The effects of the tariffs imposed by Washington and Beijing began to be felt at the same time, which diminished the appetite for investing and resulted in the current dire predicament.

Investments have not stalled completely, however. The most notable investment this year came in February when the SoftBank Vision Fund, the $100 bn tech investment vehicle of Japan’s SoftBank Group, spent $1.5 bn on Chehaoduo Group, which runs a used-car trading platform. Horizon Robotics, which designs artificial intelligence chips, raised $600 mn the same month.

Otherwise, the lack of funding has certainly dealt a crucial blow to China’s up-and-coming high-tech sector. WM Motor, an affiliate of search giant Baidu, is the only electric vehicle outfit to successfully execute a major fund-raising round this quarter, down from the three injections industry-wide a year earlier. This comes as the Chinese government is winding down subsidies for electric vehicles.

It also comes as market players have failed to live up to expectations. NIO, an electric auto-maker that went public on Wall Street last fall, was seen as a contender against Tesla. But it called off plans to build its own plant in its home city of Shanghai, and will continue to rely on a contract manufacturer. NIO ended up turning in a pretax loss of ¥9.6 bn ($1.4 bn) for 2018.

Interest has lapsed in the once red-hot sharing economy, too. Investors poured hundreds of millions of dollars into bike-sharing leaders Mobike and Ofo, until they both hit the financial rocks. Mobike has since been swallowed up by food delivery app Meituan Dianping and unpaid bills have placed Ofo’s founder on a government blacklist.

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