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Business

Tech giants primed the explosion of unicorns in China

Baidu, Alibaba, Tencent, JD.com fund nearly half of Chinese billion-dollar startups

LONDON -- There has been an explosion of "unicorns" -- startups with valuations of $1 billion or more -- in China since 2015, underpinned by the growth of new technology companies.

An analysis by the Nikkei Asian Review finds that 86% of China's unicorns have appeared in the last three years. With 18 unicorns joining the club in 2017, the country is one short of the record set in 2015.

Figures also show that China's largest technology companies control nearly half of these highly valued startups.

CB Insights, an analytics specialist that provided data on 217 unicorns worldwide, found that 46% of Chinese billion-dollar startups are funded by a network of large tech companies, including Baidu, Alibaba Group Holding and its affiliate Ant Financial, Tencent Holdings, and JD.com. These companies are known collectively as BATJ.

One of the tech companies' few competitors in China is investment fund Sequoia Capital China, which was set up by the U.S.-based venture company of the same name. Across Asia, Sequoia has taken part in 13 rounds of fundraising, a number exceeded only by Tencent, with 19 investments.

Tencent's fiercest rival is Alibaba, yet hold both stakes in Ele.me, a food delivery service. Overlapping ownership is also seen between BATJ companies and Sequoia.

Didi Chuxing, a ride-hailing service that succeeded in pushing U.S. rival Uber out of China, was one of the country's first unicorns and remains its biggest. It broke the billion-dollar valuation mark at the end of 2014. Since then, its strong growth and investments have pushed its valuation to around $50 billion. This makes it the second-largest unicorn in the world, behind Uber.

Didi Chuxing is now a big investor in its own right. In March, it took a stake in Ofo, one of China's biggest bike-sharing services.

There are several reasons why China has fostered so many unicorns. The country's sheer size gives Chinese entrepreneurs a larger market than many of their Western counterparts enjoy. Its consumers are open to experimentation and inefficient public services gives innovative startups more leverage to pitch their ideas to investors and customers.

Datawatch is a new series jointly produced by the Nikkei Asian Review and FT Confidential Research.

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