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#2. History of Chinese VC in One Chart
www.realchinacharts.com

#2. History of Chinese VC in One Chart

Topics: Venture Capital, Coal & Electricity, Real Estate, Foreign Currency Debt, PBOC, Singles Day

China Charts
Oct 26, 2021
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#2. History of Chinese VC in One Chart
www.realchinacharts.com

This is China Charts. We are a pair of finance professionals with boots on the ground in China, each with 10 years of experience in the country. We love charts, mainly because of their ability to tell so much. In this newsletter we create and gather informative charts on the Middle Kingdom. Feel free to get in touch about deep dives on companies and data sets.

I. Venture Capital

China VC in one chart. Count of A-rounds per year on Y-axis. Segmented by sector. A-rounds only (A, A+, excludes preA) because in our interpretation that’s really the type of round that signifies whether or not a sector is taking off. Anything prior to a proper A-round (angel, seed, preA) is still quite speculative. Anything after (>=B rounds) is usually further validation of a particular company but in quantitative terms these get fewer in the aggregate and do not really capture whether the sector is getting wind in their sails, which is what we’re after. Notice the consistently strongest sectors are: advanced manufacturing, enterprise software, medical. Other sectors have largely come and gone.

Here’s the same data presented as a stacked barchart. Notice expansion of the strongest sectors (advanced manufacturing, enterprise software, medical) in recent years, especially after 2014.

Moving on to segmentation by round types. Very visibly angel rounds saw an explosion in a frothy 2014-2016 before largely dying off. Funnily enough, the timing of the angel boom ends as money poured into real estate in 2016 as we detailed in our previous post here. Liquidity migration?

As for A-rounds, these also peaked around 2014-2016 but held stronger than angel rounds despite the drop off. Notice that while Covid-19 probably did contribute to a “capital winter” (covered plenty in media circa 2018-19), the downtrend from the 2014 peak was well underway before the virus. Just looking at the chart, the fall in A-rounds counts was partly made up by BCDEFGpreIPO rounds, as investors favoured investing in existing companies past the A-round rather than entirely new ventures. Arguably, a professionalisation of the industry took place as angel investors phased out post 2016.

In recent years, the strongest performance is shown by strategic rounds. This is the only round type that has been increasing in numbers. Arguably, in a way China’s walled garden is dominated by “800 pound gorillas” (Alibaba, Tencent, ByteDance in internet space) and there are fewer and fewer green pastures where entrepreneurs can get a foothold without the backing of a strategic player (these dynamics are a longer discussion). So increasing strategic round numbers make sense in that context.

Here’s the same data presented as a stacked barchart. Again, notice the phasing out of angel rounds and concomitant increase in strategic rounds. BCDEFGHpreIPO rounds as a percentage of total largely same throughout.

And finally, tallying up all the round types together, we get this chart. As already discussed above, visible peak in 2015 largely driven by angel rounds. Data on round numbers as of Oct 2021 already exceeded 2020 so arguably we are past the lows. We’ll probably never hit the same round counts as in 2015.

If we had to take a gander, VC will probably experience the same that has happened to real estate after 2016 (discussed in detail in our previous post here): cessation of the large across-the-board boom-bust cycles, and dynamics becoming increasingly idiosyncratic (in this case sector and company specific). Arguably, average round size will also increase (data spotty so not charts unfortunately), as unrecognised green pastures and low hanging fruit disappear amid competition, professionalisation of the VC industry, and general maturing of China’s economy.

II. Coal & Electricity

China relies on coal imports for electricity production. China stopped importing from Australia this year and substituted with Indonesian coal.

Source: Alpine Macro

China’s coal mining regions and coal use regions are not the same, transportation and well run inventory levels are important.

Source: 2015 @YanQinyq tweet

Chinese regulators are trying to bring down the price of thermal coal. It is working so far.

III. Real Estate

Property tax trials are being expanded to more areas. Their usefulness will hinge one whether they can help provide much needed tax revenues to local governments which had to rely heavily on land sales and debt in the past.

Source: NPC Observer Read full piece

According to Bloomberg calculations based on official data, home purchases fell 17 per cent by value in September year on year, and 20 per cent in August.

Source: FT Read full piece

IV. Foreign Currency Debt

As concerns around debt in China are increasing, these two charts help show how the situation is more manageable for China than the situation in the hot-money driven Asian Financial Crisis.

Source: Read full piece

While the amount appears high, as a percent of GDP it is much more manageable.

Source: Read full piece

V. PBOC

PBOC’s net injections hit a new high since January 2021.

VI. Singles Day

With Double-11 or Singles Day coming up, Bain has some good charts on breaking down the numbers. The shopping event has been getting longer over the years. Headline writers should take note, a big Singles Day GMV isn’t all spent “in one day.”

Source: Bain read full piece

Some key trends that fueled GMV growth last year appear to be continuing. For instance, penetration in lower-tier cities is likely to increase again and breach a symbolic threshold: Our consumer survey suggested that there will be more first-time Double 11 participants from Tier 3, 4, and 5 cities this year than from Tier 1 and 2 cities. A pandemic-related surge in spending on wellness categories is also likely to carry over from 2020 to 2021, especially in cosmetics and personal care (see Figure 3). Overall, many Singles Day shoppers say they still strongly prefer brands that are familiar (more than 70% of respondents) and those that are value oriented (60%).

Many people put off spending in anticipation of Singles Day deals. Maternal and baby products seem high given widely reported lower births last year.

Source: Bain read full piece

Thanks for reading. Feel free to send feedback or tips to ChinaCharts@outlook.com

Sincerely,

China Charts Team

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#2. History of Chinese VC in One Chart
www.realchinacharts.com
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