Artificial intelligence and cleantech interest is driving the venture capital investment in Asia, while more broadly, VC has been through a tough period in China.
Despite a challenging start to the year, China secured eight of
the largest 10 venture capital deals in Asia in the first quarter
of 2024, according to the latest KPMG Venture Pulse
report.
China continued to show interest in advancing AI and machine
learning innovation; cleantech and alternative energy – also
attracted strong funding within China – where three clean
techs were among the largest deals in Asia during the quarter,
KPMG said in a statement.
However, while these figures gave some comfort for VCs, overall
venture capital investment in China fell 30 per cent quarter
on quarter to $11.5 billion. “Despite several large cleantech
raises, VC investment in China fell from $15 billion in Q4 “23 to
only $11.5 billion in Q1’24 – the lowest total seen
since Q1’20. This number is striking, despite a tendency for Q1
to be slow in China due to the timing of Chinese New Year and
companies waiting to evaluate their year end financials before
making major decisions,” KPMG said.
Higher interest rates, geopolitical strains and deteriorating
US-China trade relationships have created problems for China in
recent years.
“Transition” technology appears to be a bright spot in today’s
challenging VC market.
In parallel, a new report by Swiss private
bank Lombard
Odier shows that China is taking a leading role in a range
of transition technologies. China accounted for 38 per cent
of this transition total, well ahead of investments in
Europe and the US at 19 per cent and 17 per cent
respectively. China has built a dominant position in the hardware
part of the energy transition. The cost structure of Chinese
leaders in the field is very difficult to compete with, Lombard
Odier added. See more commentary here.
According to KPMG, VC-backed companies in Asia raised $18.9
billion across 2,305 deals. The top three largest VC deals in
Asia came from China, including a $1.1 billion deal by the
electric vehicle company IM Motors, a $1 billion deal by
AI-focused YueZhi AnMian, and a $940 million deal by Yuanxin
Satellite.
AI and new energy continued to be the most attractive sectors for
investment in China, including subsectors such as new
materials for manufacturing to support new energy activities,
KPMG said. China accounted for four of the world’s new cleantech
and alternative energy-focused unicorns in the first
quarter – Sungrow NewEnergy, Guangxi CNGR New Energy, Zhizi
Auto, and Qiyuan Green Power.
“In China, we have witnessed significant development in the
electric vehicle sector, especially in the passenger vehicle
market,” Zoe Shi, partner at KPMG China, said. “Currently,
there is a growing interest in electric vehicle trucks due to
China‘s vast industrial market and the extensive use of
trucks for industrial transportation. However, further progress
is required to fully expand this sector, from an energy-related
aspect of development and exploring new materials to support
industrial vehicles.”
Despite the difficult start to the year, the Hong Kong government
is continuing to support research and development to drive the
commercialisation of research outcomes, nurture local startups,
and boost collaboration with sister cities in the Greater Bay
Area, KPMG continued. Companies from mainland China and the US
which are involved in life and health technology, AI and data
science, fintech, advanced manufacturing and new energy, have
committed to setting up R&D centres or regional offices in
Hong Kong, via the Office of Attracting Strategic Enterprises
(OASES), to invest more than $5 billion, creating over 13,000
jobs in the coming years. These companies will boost the startup
ecosystem, KPMG added.
Looking ahead to the second quarter of 2024, VC investment in
Asia is anticipated to remain stable, with the consumer market
expected to recover gradually, the firm said. AI and ESG-related
technologies, including battery technologies, the electric
vehicle value chain, and semiconductors, are projected to
continue drawing significant investments. China expects that
potential government policies aimed at boosting economic
confidence could enhance VC investor sentiment in the latter half
of 2024, should the policies materialise.
