Tech Investment in China Steered to Beijing Priorities

"China is luring record levels of investment into the country's technology sector, even as it clamps down on consumer-technology companies such as Alibaba Group Holding Ltd. and Didi Global Inc.

Unlike in previous years, when most Chinese tech funding went to internet startups in e-commerce, the bulk of the money in the past year headed into areas that hew more closely to Communist Party priorities, such as semiconductors, biotechnology and information technology.

Venture-capital investors put $129 billion into more than 5,300 startups in China in 2021, higher than the market's last record of around $115 billion for 2018, according to data from investment database Preqin, which has tracked China venture-capital deals since 2000.

A broader measure of investment financing into Chinese startups, which also includes private-equity financing, reached $165 billion in the first three quarters of 2021, on track to surpass a record of $190 billion in 2017, according to figures from PE Data, an investment-financing database owned by Zero2Ipo Holdings Inc. Full-year data isn't yet available.

The funding boom shows how popular China remains as an investment destination despite the government's attempts to impose more restrictions on some tech firms, and a broader financial decoupling between China and the U.S.

Beijing seems to be succeeding in redirecting capital into what are known as "hard-tech" areas, which leaders feel can better serve national interests than food delivery, videogaming or e-commerce.

The country's new five-year plan labeled technology development a matter of national security and announced aims to increase spending on research and development by 7% annually -- higher than budget increases for its military. The economic blueprint included plans to speed up development of technologies from chips to artificial intelligence and quantum computing, which officials hope can reduce China's reliance on foreign providers or allow it to take the lead in advanced technologies.

Between 2016 and 2020, by contrast, the country promoted the "Internet Plus" movement, which sought to harness the internet to modernize China's industries and fuel growth.

The internet sector, typically among the top two investment areas in previous years, dropped to fourth in the first three quarters of last year, with around $20 billion of financing -- about $10 billion less than the most popular category, semiconductors, PE Data indicated.

"Semiconductors, advanced manufacturing, enterprise software, anything that involves data, those are ripe areas," said Gary Rieschel, a partner at Qiming Venture Partners, which has about $6 billion in assets under management and has offices in Beijing, Shanghai, Hong Kong and Suzhou." [1]

1.  EXCHANGE --- Tech Investment in China Steered to Beijing Priorities
Lin, Liza; Yang, Jing; Zhai, Keith. Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 15 Jan 2022: B.11.