When overseas expansion proves difficult, investment is a popular tool for gaining a foothold in a market. In the U.S., an inhospitable market towards Chinese companies has led to more investments and thus more scrutiny. Acquisitions have become increasingly contentious, with a number of acquisitions getting quashed by the Committee on Foreign Investment in the United States, which can block acquisitions on national security grounds. Smaller investments in startups, though, have so far avoided scrutiny thanks in part to lower regulations in this area.
Perhaps the most well-known industry receiving an infusion of Chinese cash is gaming. Video games are a big revenue stream for Tencent, and Alibaba has also made investments in this area. Given the growth in the gaming industry, this has been a smart bet, but Chinese companies aren’t just interested in software and services.
Major areas of interest for Chinese investment include semiconductors, artificial intelligence, virtual reality, biotechnology, power technology and internet of things.
Tsinghua University’s investment arm Tsing Capital represents China’s investment interests well. Last year it invested Phononic, a North Carolina-based semiconductor firm, WiBotic, a Seattle-based wireless power company, and Bluesmart, a New York-based smart travel product company.
Shanda Group, another investment group owned by a Chinese conglomerate, has gone on a spending spree on VR companies in the U.S., including SpaceVR, Atheer and Upload. The group has also invested in the AI voice processing company 2Hz and Teambrella, a P2P risk-sharing company using Ethereum cryptocurrency.
Cash-flush corporate investors and large brands in China are increasingly seeking new ways of expanding abroad. For brands like Alibaba and Tencent, the companies’ core products have found little traction outside their home market. In order to gain a foothold in the Southeast Asia e-commerce market, Alibaba bought up Lazada. To move into the U.S. gaming market, Tencent acquired a majority stake in Riot Games and a minority stake Epic Games, and even invested in Activision Blizzard.
Between 2012 and 2017, China’s foreign investments and construction grew 95 percent from $142.71 billion to $278.36 billion, according to the American Enterprise Institute. China’s foreign investments peaked in 2016 at $283.12 billion before decreasing slightly the following year, but that doesn’t mean China is losing its appetite for foreign investment. With projects like the Belt and Road Initiative, China is incentivizing more foreign investment. The Made in China 2025 initiative to push China’s manufacturing up the value chain specifically emphasizes the industries in which the country’s investors are now pouring their money overseas.
For startups within these specific fields, that’s good news. It increases the options for a favorable exit, especially if it means more companies bidding for buyouts.
Startups in AI, IoT and VR are especially well-positioned today. These areas are booming at trade shows like Startup Launchpad, as well, where startups increasingly differentiate themselves based on the intelligence of their products. Though China is today a major player in all these areas, it still hasn’t beaten out Silicon Valley for the most high-valued research and development. Chinese money will increasingly be playing an important role in the tech sector abroad for the foreseeable future.
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