From coverage of Uber’s merger with Chinese Didi Chuxing to the popular bike-sharing apps, China’s technology sector dominated headlines in 2016. Soon after China’s tech scene emerged, the conversation has moved from questioning if Chinese firms can revolutionize to how Western firms can imitate the success of Chinese mobile apps like WeChat. Now analysts are shifting focus to new emerging trends and firms.
Spending over $207 billion in mergers and acquisitions, Chinese firms had an active 2016 at the global level. The spree in M&As and other foreign investments is expected to progress in future.
The largest tech firms have initiated their global expansion, expanding their horizons to Europe, the US and Southeast Asia. Ant Financial, Alibaba’s financial arm, invested in Ascend Money, a Thai fintech company, to increase its online financial products.
Chinese companies invested $3.5 billion in American companies during the first 9 months of this year. They may increase those investments over the next years.
Some companies are choosing to sidestep the domestic market completely. A mobile tools provider (Cheetah Mobile) generates over half of its business outside of China’s borders, while it is headquartered in Beijing. A video social network app based in Shanghai called Musical.ly is one of the most downloaded apps in the U.S and Europe.
The reason is that the younger entrepreneurs are exposed to international news. In the past they were more concerned with China, but now they are more in tune with what is happening globally.
A Boom in Fintech
China’s consumers have skipped various stages in their technological progression, dodging aging Western technology in favor of new trends.
“I really do believe that China is becoming a global hub when looking at global technology and they historically have led with creating financial products. This will only continue to accelerate because we see China skipping growth patterns we saw in the U.S.” (Jeremy Peruski, ICR, a consulting firm).
Credit cards have never taken hold, with most customers choosing in its place to use their phones and payment apps like WeChat, Alibaba’s payment system and Alipay. According to a report, 40 percent of consumers in China now use new payment methods.
Further supporting development in China’s fintech is a new social credit system that the government expects to fully implement by 2020. The system assigns every citizen and business a credit score based on their social behavior, earlier purchases and other financial information. The score would be used to decide a person’s eligibility for all (loans, places they can travel, government jobs etc.).
China’s peer-to-peer lending segment is likely to continue to grow over the next year to fill the space left by more old-style banking. China Rapid Finance facilitates in offering loans to online consumers and the middle class, who have no access to credit scores. The firm presently has more than 1 million borrowers, and the number is expected to increase.
Lower Valuations and Tightening Investments
Valuations hit a peak in 2015 after a flood of cash hit the market from new venture capital funds and rich Chinese seeking new investment vehicles. 19 Chinese firms were valued at over $1 billion (2015), but that figure went down to 11 in 2016 and may fall further this year.
Beauty app Meitu is the newest Chinese company to have a first public offering, going public on the Hong Kong stock market this month with a valuation of $4.6 billion – lower than investor hopes.
Investments into startups are similarly likely to continue to slowdown in 2017. Those who do get larger funding amounts may be in the artificial intelligence segments of the industry, including automated driving and robotics.