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Business trends

Fundraising by China's startups surges 60% to $80bn

Last year's bandwagon slowed in fourth quarter under economic uncertainty

SHANGHAI -- Privately held companies in China raised big money last year as investors flush with cash from IPOs shopped for the next generation of promising targets. But 2019 may be a different story.

Chinese startups secured about 560 billion yuan ($83 billion) last year, notching up 60% more cash than they did in 2017. The 2018 tally covers some 1,150 deals with funding from known sources. These included venture capitalists, domestic and foreign investment funds and angel investors that were often tech giants hoping to nourish innovative ideas and technologies and help bring them to international markets. The information was based on Chinese database DZH.

Including investments from undisclosed backers, the figure is estimated between $96 billion and $97 billion.

That would be on a par with the $99.5 billion U.S. counterparts raised last year, shows data from PricewaterhouseCoopers and other service providers.

ByteDance, the company behind the hugely popular short-video app TikTok, raised $3 billion through a round of funding in October and November. With big checks from investors like SoftBank Vision Fund, backed by Japan's SoftBank Group and Saudi Arabia's sovereign wealth fund, and U.S. funds, the Beijing company's valuation surged to $75 billion, joining the big unicorn club that includes ride-hailing service Uber Technologies and Ant Financial Services Group, a financial unit of Alibaba Group Holding.

With TikTok already hugely popular in Japan, the U.S. and elsewhere, ByteDance seeks to broaden its presence in other international markets and is expected to go public as early as this year.

Full Truck Alliance Group, a matchmaker platform for truckers and freight also known as Manbang Group, secured $1.9 billion in April. VIPKid, an online English instruction service connecting Chinese students and teachers abroad, raised $500 million, while electric vehicle manufacturer Xiaopeng Motors got at least $700 million. All these startups look to expand operations in a bid to win a sizable slice of China's enormous market.

Many Chinese unicorns -- privately owned companies worth at least $1 billion -- achieved successful initial public offerings last year.

Pinduoduo, a discount e-commerce platform boasting upwards of 200 million users, electric car producer NIO, and food delivery app Meituan-Dianping were among Chinese startups that debuted on the U.S. and Hong Kong markets.

Last year, China's venture capital sector saw the growing presence of tech giants that have established dominant positions in the home market. Alibaba, Tencent Holdings and Baidu alone were involved in deals totaling 185 billion yuan, or a third of all investments. These companies are competing to get their hands on new technologies and creative ideas for further growth. Other backers include SoftBank, U.S. fund Sequoia Capital, Singapore's Temasek and wealthy individuals in China.

Sovereign funds are also flexing their muscles. Under Beijing's mission to become a basic technology powerhouse, funds tied to the national or local governments are turning to fast-growing startups, particularly in chips and artificial intelligence.

AI platform SenseTime Group attracted the fund launched by the city of Shenzhen, home to tech companies like Tencent, and a fund run by a state-owned bank.

The China Integrated Circuit Industry Investment Fund, which specializes in the chip industry, has finished handing out checks totaling 140 billion yuan and is already planning to invest an additional 150 billion yuan to 200 billion yuan. The plans make it one of the biggest industry-specific funds in that country.

Yet the startup investment binge is losing steam amid worries about a global economic slowdown. Startups raised 99 billion yuan in the three months ended December, about half of the total for the preceding quarter.

The escalating trade conflict between Beijing and Washington is also expected to dampen sentiment of foreign investors. The trade war has developed into a battle over technology, and some companies like Huawei Technologies have been singled out as U.S. targets. Foreign funds operating in China are starting to feel that they have no choice but to pick companies with smaller political risks, an executive said.


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