A factory in Suqian, Jiangsu Province, China, May 9, 2022.
Future Publishing | Future Publishing | Getty pictures
BEIJING – In terms of numbers, manufacturing companies in China took the most investment agreements in the first half of the year among 37 sectors tracked by the Qimingpian business database.
In fact, the number of early-stage pre-IPO agreements in production increased by about 70% from year to year despite Covid controls and a fall in Chinese stocks over the past six months.
About 300, or about a quarter of these agreements, were related to semiconductors, preliminary data showed. Several of the listed investors were government-related funds.
Data on early investments are not always complete due to the private nature of the agreements. But available figures may reflect trends in China.
The investor interest in chip companies comes as Beijing has cracked down on consumer-focused Internet companies, while promoting the development of technology as a tool for integrated circuit design and semiconductor manufacturing equipment.
Production accounted for about 21[ads1]% of investment agreements in the first half of the year, according to Qimingpian. The second most popular industry was business services, followed by health and medicine.
Electric car and transportation-related start-ups ranked first by capital raised, at 193 billion yuan ($ 28.82 billion), based on available data. Amounts of money were not published for many agreements.
“Over the last 12 months, I think there has been a lot of hot capital chasing after a few deals that are in sectors that the government is heavily promoting,” said Gobi Partners CEO Chibo Tang, without mentioning specific industries. He said that the trend has resulted in dramatic increases in valuation, while fundamental conditions have not changed much.
A two-month shutdown in Shanghai and Covid-related restrictions hit business sentiment and prevented people from traveling to discuss and close deals.
In the first half of the year, the total number of investment agreements in China fell by 29% from the same period a year ago, and fell by 25% from the second half of last year, according to CNBC calculations of Qimingpian data.
“Given the market downturn in recent months, there’s a lot more capital on the sidelines,” Gobi Partners’ Tang said Monday on CNBC’s “Squawk Box Asia.”
His firm expects more early-stage investment opportunities to emerge over the next 12 months, as valuations fall. Tang noticed how many start-up companies that raised capital 18 months ago had growth forecasts that are now being reset lower.
“Entrepreneurs have a harder time raising money,” he said, “so the conversations we have with them are how they should save capital, how they should expand the runway.”
Over the past 12 months, Beijing’s breakdown of technology and education companies following Didi’s IPO in New York has halted investment funds’ ability to easily pay out bets via a listed offering.
While the future of Chinese stock quotes in the US remains in limbo, many start-ups have chosen a market closer to home.
But as of June 14, more than 920 companies were still queuing to go public in mainland China and Hong Kong, according to an EY report. There was little change from March.
“Pipelines remain strong in part due to delays from some delayed IPOs since Q1,” EY said in the report.
The mood in the mainland markets picked up as Covid controls declined in recent weeks. Despite declines of more than 6% so far this year, the Shanghai composite rose by almost 6.7% in June for the best month since July 2020.