SHANGHAI -- China's venture capital fever could be the beginning of the country's next bubble, fed by the same knee-jerk response to signals from Beijing that propelled the boom and bust of the property and stock markets.
Here today, gone tomorrow
China perceives Japanese business as moving at a snail's pace. Even international e-commerce -- the digital counterpart to the much-touted "explosive buying" of goods by Chinese tourists in Japan -- is not immune from delays. Investors looking to make a quick fortune bringing Japanese goods to buyers in China often must wait three to six months for suppliers to make decisions in trade talks. Parties in this country could be forgiven for fearing that a particular trend may have passed by the time a bilateral project is up and running.
But from the standpoint of a reporter well-versed in the ways of Japanese and American companies, Chinese enterprises' decisions often are shockingly swift. That quick pace can come at the expense of thorough consideration. News that real estate is the next place to be brings a rash of new property operations. The notion that a quick buck can be made in steel is enough to build a mill on.
The results of such behavior are clear. Real estate development out of touch with demand creates ghost towns. Overabundant steel plants transform into "zombie enterprises," unable to turn a profit and sapping economic resources. The funds of companies and wealthy investors rumble across the industrial landscape like a storm cloud, pouring down on financial products, stocks, mall development, peer-to-peer lending, overseas property and other fields one minute only to leave them dry the next.
Next big thing
Startups appear to be the next hot investment target. Venture capital firms put a grand total of 129.3 billion yuan ($19.9 billion) into promising young Chinese companies in 2015, 25% more than in the year prior and some 20 times the level in Japan.
Startup fever was on full display at the end of March in the southwestern city of Chengdu, Sichuan Province. A hotel on the city's outskirts was abuzz with 20-somethings -- startup founders on the hunt for funding at a meetup with investors. Fifty venture capital firms met with 600 entrepreneurs, giving them 15 minutes at a time to sell their concepts and growth prospects. Such short meetings occasionally result in
millions of yuan in funding, making them critical opportunities for founders fighting to take their companies to the next level.
After the meetup came the main event: a so-called pitch battle giving investment seekers just seven minutes to make their case before a 10-person panel. Of the 300 companies that applied to participate from Japan, India and other locations worldwide, just 15 reached the live final round.
Among the contestants was Chris Shi, co-founder of virtual reality startup uSens. The company began in 2013 in Shenzhen and now develops mobile VR devices. A specialized headset works with a user's smartphone to display immersive games, simulations of outer space and other virtual worlds. Two small cameras enable augmented reality functions, wherein virtual imagery is superimposed on the real world. For example, by precisely tracking the position of a user's hands, the device can display a virtual book whose pages can be flipped, or digital buttons to be pressed. Headsets begin shipping this month for $99 to $350 each, affordable compared with similar devices.
Shi is a graduate of Shanghai's prestigious Fudan University. While many of his classmates took jobs in the government or at major state enterprises, Shi headed to the U.S., earning a Ph.D. in physics before taking a six-figure finance job in New York. But several years ago, he says, he got the urge to apply his education in a way that could change people's lives. Shi left his family in New York and moved back home, joining the crowd of passionate young entrepreneurs ready to take advantage of the free-flowing capital about to hit China's startup sector.
The surge of funding into startups benefits China's economy in that it speeds the metabolism of business resources. Yet like the real estate, steel and stock booms before it, the rapidly expanding market smacks of hasty decision-making.
The groundswell of venture investment can be traced to a call by Premier Li Keqiang in September 2014 for economic development fueled by entrepreneurship. The idea of innovation led by the common man is hardly new territory. But the word of China's leaders carries real weight. The idea of startup-sector development as a mandate from on high, alongside competition among local governments to subsidize those efforts, had companies and investors racing to join in. Despite managers' and investors' ostensible distrust of what the government says, keeping one ear tuned to Beijing frequently yields valuable tips on the latest way to make a profit.
China's government thus holds the power to create the country's next investment craze where it chooses, sending funds flowing into real estate, steel or stocks with a point of the finger. Those gestures themselves have become key indicators for management, making rapid, knee-jerk investment decisions all but unavoidable.
With uSens pulling in funding offers left and right, Shi maintains that energetic startups have the power to improve lives. Yet it is not hard to imagine what will happen when Beijing motions toward another new market. One can only hope the government finds a way to keep investment flowing in more than one direction at once.