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How to go big in Xi Jinping’s China

Ggreater bay technology The speed of transforming into a beast is very fast. The startup, which specializes in ultra-fast lithium-ion battery charging, launched in late 2020. Just 19 months later, it was valued at $1 billion, making it a unicorn (that is, an unlisted company valued at or above that value). The creature is becoming more and more common in China. The Greater Bay Area joins more than 300 of them in 2022, double the number five years ago. These new unicorns provide an interesting snapshot of the country’s changing industrial priorities.

Therefore, the list is constantly changing. Companies fail because they go public or their market value plummets. Some of the most promising companies have run into trouble when they run into regulatory issues.initial public offering (IPOFor example, fintech giant Ant Group was dropped at the last minute in 2020 under pressure from regulators. Its valuation has reportedly plummeted to around $64 billion from more than $300 billion before the failed listing. Others have grown stronger. Beijing-based ByteDance, which owns short-video app TikTok, was recently valued at $220 billion, making it the world’s most valuable private company.

To understand which sectors are being prioritized and which are being ignored or suppressed, economist Analyzes the changing mix of China’s most valuable startups over the past five years. The results revealed a country full of unicorns focused on making goods favored by the Chinese government. They are popping up outside the well-established tech hubs of Beijing, Hangzhou and Shenzhen. While private Chinese tech giants such as Alibaba and Tencent have dominated the startup scene in the past, much of the recent growth has been underwritten by state-owned enterprises.

Consider first what the current unicorn crop does. Many are aligned with the administration’s long-term technology goals, which involve moving from consumer internet companies to areas the government believes will drive the economy’s future. These include green energy as well as semiconductors, smart manufacturing, software and artificial intelligence, and biotechnology.

The shift is also crucial to Chinese President Xi Jinping’s efforts to reduce reliance on foreign technology at a time when the U.S. is trying to starve Chinese companies of advanced semiconductors. In talks with senior officials on April 21, Xi said the government must help companies break through technical barriers to achieve “self-reliance” in the most important areas.

So a lot has changed since 2017, as data from China’s Ministry of Science and Technology and the Hurun Research Group show. At the time, e-commerce dominated the startup scene, with about 20 percent of unicorns working in online sales and related industries (see chart). Another 13 percent are in fintech and 9 percent in culture and entertainment. These industries later failed. Healthtech and biotech are the largest group of unicorns by the end of 2022, accounting for about 13% of the country’s 315 unicorns. The amount of artificial intelligence (AI) unicorns increased from 6 to 35. Dozens of software, enterprise services, green energy and robotics unicorns have sprung up where there were few or no unicorns before. In 2017 China had no unlisted semiconductor companies valued at more than $1 billion; state media claimed there would be 50 by the end of 2022.

Entire industries have disappeared from unicorn lists. By 2017, China had nine edtech companies worth at least $1 billion. But in 2021, a sweeping government campaign against companies offering online courses to young students has decimated the industry. At the end of last year, no such unicorn existed. Meanwhile, a crackdown on online finance in recent years has halved the number of highly valued fintech companies.

As the industries in which unicorns operate have changed, so have the geography of innovation. The boom in consumer internet technology has happened naturally in China’s big cities, where affluent consumers are concentrated. Only a few centres, mainly Beijing, Hangzhou and Shenzhen, are home to the most successful companies. Part of Mr. Xi’s grand transformation of China’s economy, though, involves distributing development more evenly across the country. That means funding more innovation in new places. Some big cities known primarily as manufacturing hubs rather than innovation hubs are becoming startup havens. For example, the Greater Bay Area is located in Guangzhou, which is part of China’s southern factory belt (see map). The same goes for 22 other unicorns, up from just three five years ago.

Smaller cities are also part of the unicorn boom. Hithium, a lithium battery maker founded in 2019 and most recently valued at 25 billion yuan ($3.6 billion), is headquartered in the southern city of Xiamen. A robot-assisted surgery company called Sagebot has launched in Harbin, in the rust belt of northeastern China.it is planning a IPO After recently achieving a valuation of RMB 8 billion.according to a list ForbesAs a business publication, Unicorn has even appeared in Qinghai and Tibet, the remote western regions of China.

Funding sources have also changed dramatically over the past five years. Private giants are no longer the center of gravity of China’s tech scene. Not long ago, startup founders joked that the only business model that matters in China is “b-arrive-bat“, or sell their company to one of China’s largest tech conglomerates — Baidu, Alibaba or Tencent (collectively referred to as bat). Alibaba and Tencent emerged as two major forces in China’s venture capital industry, eventually displacing dedicated private equity firms. In 2017, China’s five largest tech groups — Alibaba, Tencent, Xiaomi, Baidu and JD.com — invested in about half of China’s unicorns.

Today, they have much less influence. According to our analysis of company disclosures and news coverage, the investment of the top five tech groups has dropped to around 21% through 2022. This partly reflects the government’s crackdown on the monopolistic practices of the tech giants, which has led them to invest less now than in the past. But it also reflects the emergence of new funding sources, often state-backed.

For example, cash from government-backed funds has poured into “hard tech”. Of the 50 semiconductor unicorns identified by Chinese state media by the end of 2022, state entities have invested in or fully controlled 48 of them. Many large state-owned enterprises are playing the role of business incubators. For example, the Guangdong-Hong Kong-Macao Greater Bay Area is the youngest of the four unicorns invested by Guangzhou Auto (activated carbon), a state-owned automaker.By distributing funds to some startups activated carbon It is becoming the link of transportation technology. Aion, a unicorn EV outfit, is backed by activated carbon, using the Great Bay battery technology.Ride-hailing startups such as Qiqi Chuxing are leveraging devices from Greater Bay and Aion as well as from activated carbonThe automaker is also backing a semiconductor maker called CanSemi, which recently raised funding at a $1 billion valuation.

Qiyuan Green Energy, a Shanghai start-up that provides battery charging and replacement services for large trucks, tells a similar story. The group is owned by the State Power Investment Corporation (spicy), a centrally controlled state-owned enterprise that holds a controlling stake in Qiyuan. Launching subsidiaries is nothing new for state-owned entities. But Qiyuan looks more like a start-up than a typical government-run company. It launched multiple rounds of financing to bring in private investment, and joined other private groups vying for cash and talented engineers. In April last year, the Greater Bay Area also raised funds from a number of privately-controlled investors, including Tencent.

A recent fundraising roadshow for Qiyuan was attended by 80 investors who expressed interest in taking stakes, said Guo Peng, an executive at the company. A “hybrid” company with state and private interests, Qiyuan enjoys some of the efficiencies of a private start-up but is backed by a powerful state-owned group. Guo said that there is no doubt that the national lineage increases investors’ confidence in the company’s future.

It’s not just state-owned companies that are pouring in. Privately held telecoms equipment maker Huawei only started making venture capital-style investments in 2019. It has since completed at least 91 individual investments in start-ups, an increase from the previous two over the past seven years, according to data compiled by Chinese investment intelligence firm Itjuzi. One of the lithium battery companies, Welion, was valued at 15 billion yuan last year. If only a handful of investments in the past four years have been successful, the company should have become a hub of valuable entrepreneurial activity.

For Xi, the recent tech boom is both a source of pride and a potential problem. The state has moved to curb speculative bubbles in some areas while unleashing market power in others. It refers to the massive amount of money that once poured into internet businesses as “capital sprawl”. But at the same time, it is trying to make it easier for some companies to go public. In February, China’s market regulator announced that its exchanges would adopt a registration system IPOThis eliminates the cumbersome official screening process. The result was a flurry of new tech listings that hit the stock market in March and April. Stock prices soar, often more than doubling, on their first day of trading.

An investor who specializes in green energy said there is no doubt that new bubbles are being created in nascent industries. Currently, this is considered acceptable as it is in line with government policy. State-backed start-ups face few hurdles.State Impact on Capital Markets – From Seed Funding to IPOs – means companies with the right connections can easily find success through the fundraising process. However, the investor said it was unclear whether these companies had the best technology.

Foreign investors remain skeptical. Some investors worry that regulators could easily take action against an industry if speculation seems to get out of hand, said a banker who works with foreign private equity groups. Before being crushed in 2018, P2P lending had strong government support.Another recent example has to do with Chatgpt. The Chinese government has given great support to China’s domestic development AI industry.But the latest global craze AIThe support chatbot has led regulators to crack down on the region. On April 11, the country’s cyber watchdog said it would require security reviews of the businesses. As long as there is a bubble—even a state-backed one—there will be crackdowns.

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