A factory in Suqian, Jiangsu Province, China, on May 9, 2022.
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BEIJING — According to figures, manufacturing companies in China signed the most investment deals in the first half of the year among 37 sectors followed by the business database Qimingpian.
In fact, the number of early to pre-IPO deals in the industry rose by about 70% year-on-year, despite Covid controls and a plunge in Chinese inventories in the last six months.
About 300, or about a quarter of those deals involved semiconductors, preliminary data showed. Some of the investors listed were government-related funds.
Data on early stage investments is not always complete due to the private nature of the deals. But the available figures may reflect trends in China.
Investors’ interest in chip companies comes as Beijing has cracked down on consumer-oriented Internet companies while promoting the development of technology such as integrated circuit design tools and semiconductor manufacturing equipment.
According to Qimingpian, the manufacturing industry accounted for about 21% of investment deals in the first half of the year. The second most popular industry was business services, followed by healthcare and medicine.
Electric car and transportation start-ups ranked first by capital raised, with 193 billion yuan ($28.82 billion), based on available data. No monetary amounts have been disclosed for many deals.
“Over the past 12 months, I think there’s been a lot of hot capital chasing a few deals in sectors that the government is heavily promoting,” said Gobi Partners managing partner Chibo Tang, without naming specific industries. He said the trend has led to dramatic gains in valuation, while fundamentals haven’t changed much.
A two-month lockdown in Shanghai and Covid-related restrictions hit business sentiment and prevented people from traveling to discuss and close deals.
According to CNBC calculations from Qimingpian data, the total number of investment deals in China in the first half of the year fell 29% from the same period a year ago and 25% from the second half of last year.
“Given the downturn in the market in recent months, there is a lot more capital on the sidelines,” Gobi Partners’ Tang said on CNBC’s “Squawk Box Asia” Monday.
His company expects more early stage investment opportunities to emerge over the next 12 months as valuations fall. Tang noted how many start-ups that raised capital 18 months ago had growth forecasts that are now being revised downwards.
“Founders have a harder time raising money,” he said, “so the conversations we have with them are about how to save capital, how to expand their runway.”
In the past 12 months, Beijing’s crackdown on technology and education companies following Didi’s New York IPO has disrupted investment funds’ ability to easily cash out their bets through an IPO.
While the future of Chinese stock listings in the US remains uncertain, many start-ups have opted for a market closer to home.
But as of June 14, more than 920 companies were still queuing to go public in mainland China and Hong Kong, according to an EY report. That has changed little since March.
“The pipelines remain strong, in part due to the backlog of some delayed IPOs since the first quarter,” EY said in the report.
Sentiment in mainland markets has picked up as Covid controls eased in recent weeks. Despite falling more than 6% to date, the Shanghai composite rose nearly 6.7% in June for the best month since July 2020.