- Chinese companies outpaced their American counterparts in venture-capital funding for the first time during the second quarter, according to Goldman Sachs.
- Tech giants and Softbank contributed the most to this milestone.
- According to Goldman's analysts, Chinese tech giants including Alibaba and Baidu are creating ecosystems with unprecedented influence to develop new technologies and business models.
- Watch Alibaba, Baidu, Tencent and JD.com trade in real-time.
Chinese companies have outpaced their North American rivals in funding startups for the first time — even as the country's economy shows signs of slowing down.
In the second quarter, China-based companies recorded $30.9 billion of venture-capital investment, higher than North America's $27.2 billion, according to data from Goldman Sachs.
Notably, ANT Financial, the Alibaba affiliate that runs China's largest online-payments platform, raised a $14 billion Series C round, the largest-ever deal in the history of VC funding, Goldman said.
"While corporate venture capital has been a major driver of growth in venture as an asset class globally, nowhere has that been more evident than Asia, where Alibaba, Baidu, JD.com, and Tencent have followed the lead of SoftBank, creating massive ecosystems of venture investments under their umbrellas," said a team of analysts led by Heath Terry in a recent note to clients.
"Nearly every major private company in China has at least one of those five companies as an investor, and the level of influence these ecosystems have in steering the development of new technologies and business models is unprecedented."
Investments from Chinese giants span across areas from fintech to logistics, and are often used to widen their industry footprints. One way they're doing this is by funding competitors in the same industries.
"For instance, Ofo and Mobike (acquired by Meituan-Dianping), which are the top bike sharing brands in China, each received funding from Tencent in the past," Heath said.
"Similarly, Baidu Waimai, an online food delivery business once backed by BATJ, merged with Ele.me which counted Alibaba, JD.com and Tencent among its investors. Ele.me has since then been fully acquired by Alibaba."
Here is a list of some investments made by Alibaba, Baidu and Tencent across verticals.
Heath added that apart from the Chinese tech giants, VC investments flowed in from public funds, including governments, which sought to capitalize on companies' success before they filed for initial public offerings. And as valuations continue to soar in the private markets, more companies are looking to go public earlier than before, Heath said.
The rising momentum in Chinese global VC investing is partly being driven by the government's efforts to reduce its dependence on the manufacturing sector and promote a consumption-driven economy for combating slowing growth, Heath said.
The country's economic slowdown could worsen amid its trade dispute with the US; President Donald Trump threatened to hit China with tariffs on another $267 billion goods on Friday.
- UBS details all the possible outcomes of the midterm elections and why a so-called blue tsunami could be the most devastating for stocks