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What’s Trending in China’s Investment Scene

By Shelly Xu

Last updated: Feb 15, 2023

The Org has looked into some of the top investing themes in China’s market as of October 2021, and some of the venture capitalists leading the way in investments.

A look into China's investment market. Image courtesy of Shutterstock.
A look into China's investment market. Image courtesy of Shutterstock.

As the world's most populous nation and the second-largest economy, China stands out with a booming urban middle class and entrepreneurial activity.

Although the country’s economy experienced a cliff-like decline at the beginning of the year due to the COVID-19 pandemic, as consumption began to get back on track, investment growth has steadily picked up. Import and export growth continues to rise as well, according to China Daily.

With the acceleration of vaccine research and development, experts predict that 2021 will be a crucial year for China’s investment, especially in fields such as technology, consumption and energy.

The Org has looked into some of the top investing themes in China’s market as of October 2021, and some of the venture capitalists leading the way in investments.

1. Everyday life technology

As the world's largest internet market, it's no surprise to see big growth from China stocks focusing on e-commerce, AI and mobile technologies that impact various aspects of people’s daily life.

According to Chinese investment banking company Tian Feng Securities, 2021 is an important turning point for the development of the technology industry in China. With the heavy reliance on the everyday use of mobile Internet, information technology will fully empower traditional industries and bring investment opportunities to various industries.

The company predicts that investment opportunities will be grasped from the following industries: First, the field of smart terminals, including 5G, cloudification of mobile phones, the intelligence of headphones, the service of watches, the socialization of TVs and the acceleration of AR.

Second, in the manufacturing process. Smartphones have now formed a very large module manufacturing capacity, and will bring countless opportunities to the materials, equipment and chip fields. In the future, smartphones will also be implemented in new energy vehicles, leading to the expansion of China's auto industry.

Overall, China’s cybersecurity market size is expected to increase by more than four times from about RMB20 billion in 2014, according to a report from J.P. Morgan.

2. Longer-term healthcare demand

In China, the COVID-19 pandemic accelerated the application of science and technology to the social and economic fields, and increased the demand for healthcare services and products.

Research from J.P. Morgan shows China’s biologics outsourcing services market size is expected to reach RMB9.2 billion in 2021, up four times from 2016. The country’s estimated healthcare expenditure is expected to reach 7.9% of GDP in 2025, versus 6.2% a decade ago.

A major part of the reason behind this growth is the implementation of technology. According to Alibaba Damo Academy, AI has been widely used in medical imaging, medical record management and other auxiliary diagnosis scenarios. Although the application of AI in vaccine development and drug clinical research is still in the exploratory stage in China, it will be the next big opportunity for investors.

3. Consumption

As household income increases and the standard of living improves in China’s middle class, people begin to pay attention to lifestyle upgrades in both daily life necessities and entertainment. Therefore, consumption is expected to become a key driver of economic growth.

A report shows condiments market size in China is expected to increase to about RMB300 billion in 2023 from RMB128 billion in 2013. Meanwhile, according to McKinsey Global Institute, China offers a $5 trillion consumption growth opportunity over the next decade.

4. Online entertainment

As the entertainment and media sector continues to see robust growth in China, online consumption is becoming another popular field for investors.

A new report from global accounting firm PwC shows total revenue of China's entertainment and media industry is estimated to be around $358.6 billion this year and should reach some $436.8 billion in 2025, with the compound annual growth rate reaching 5.1%, higher than the global rate of 4.6%.

According to South China Morning Post, Tencent, the world's largest gaming company by revenue, already invested in 62 video game start-ups this year, double the number for all of 2020.

Luke Ye, a software engineer for a startup gaming company called “ZhuQue” in Fu Zhou, says his company has been seeing more investors since last year, including Tencent.

“The pandemic really boosted mobile game consumptions,” Ye said. “We have to constantly innovate and make online entertainment cheaper, more unique and accessible to fit the growing market need.”

China's domestic venture capital leaders

On the list of “Top Venture Firms in China of 2020” rated by Jiemian Global, DG Capital ranked first for three consecutive years.

Since its founding in 1992, DG Capital has invested in more than 900 companies and raised 45 billion yuan in 2020. The company focuses on leading companies in the fields of internet and high-tech (TMT), new consumption and services, culture and entertainment, healthcare, advanced manufacturing and clean energy. The investment scope covers start-up, growth, maturity, mergers and acquisitions, and more.

Ranked second was Sequoia Capital China Fund. Founded in 2005, the company was labeled as an "entrepreneur behind the entrepreneurs".

“Our company focuses on investment opportunities in the four directions of technology/media, healthcare, consumer goods/services and industrial technology,” Serena Lin from Sequoia China said. “Especially since last year, we have seen increasing market demand from each of those fields. And the need will continue to grow.”

Sequoia China now manages a fund scale of RMB260 billion and has invested in nearly 600 companies. Currently, more than 100 member companies have been successfully listed, and more than 60 non-listed member companies have become unicorns.

The third venture firm on the list is 5Y Capital, a Shanghai-based private equity and venture capital firm founded in 2008. It was recently rebranded in October 2020, with a focus on investing in star projects such as China’s leading consumer electronics and smart manufacturing company Xiaomi.

“During the 2020 pandemic the venture capital industry faced a lot of challenges, especially in raising funds and exiting the market,” Johny Wang from CoStone Capital said.

Even so, CoStone Capital still became one of the fastest-growing venture firms in China last year. Its investment areas are mainly focused on technology, medical and health, consumer services, culture and entertainment. Its asset management scale now exceeds RMB50 billion.

“The sharing economy system, retail and other industries have begun to gradually decline,” Wang said. “IT, Internet, semiconductor, medical and health fields are the future of investment.”

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