A factory in Suqian, Jiangsu Province, China, on May 9, 2022.
Publishing house of the future | Publishing house of the future | Getty Images
BEIJING — China’s manufacturing companies made the most investment deals in the first half of the year among 37 sectors tracked by the Qimingpian business database, according to the figures.
In fact, the number of early-stage to pre-IPO deals in manufacturing is up about 70% year-on-year despite Covid controls and the decline in Chinese stocks over the past six months.
About 300, or roughly a quarter, of those deals were related to semiconductors, preliminary data showed. Several of the listed investors were government-linked funds.
Data on early-stage investments is not always complete due to the private nature of the deals. But the available figures reflect trends in China.
Investor interest in chipmakers comes as Beijing cracks down on consumer-focused Internet companies while encouraging the development of technologies such as integrated circuit design tools and semiconductor manufacturing equipment.
Manufacturing accounted for about 21 percent of investment deals in the first half of the year, according to Qimingpian. The second most popular industry is business services, followed by healthcare and medicine.
Electric car and transportation startups ranked first in raised capital with 193 billion yuan ($28.82 billion), based on available data. For many deals, the amounts of money were not disclosed.
“Over the past 12 months, I think there’s been a lot of hot capital chasing after several deals that are 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 drastic valuation increases while the fundamentals haven’t changed much.
Shanghai’s two-month lockdown and Covid-related restrictions have hit business sentiment and prevented people from traveling to discuss and close deals.
In the first half of the year, the total number of investment deals in China fell 29% from the same period last year and fell 25% from the second half of last year, according to CNBC calculations from Qimingpian data.
“Given the decline in the market in recent months, there’s a lot more capital on the sidelines,” Gobi Partners’ Tang said Monday on CNBC’s “Squawk Box Asia.”
His firm expects more early-stage investment opportunities to arise over the next 12 months as valuations fall. Tang noted how many startups that raised capital 18 months ago had growth projections that are now being reset lower.
“Founders are having a tougher time raising money,” he said, “so the conversations we’re having with them are how do they need to preserve capital, how do they grow their runway.”
Over the past 12 months, Beijing’s crackdown on technology and education companies since Didi’s New York IPO has paused the ability of investment funds to easily cash in on their bets through an initial public offering.
While the future of Chinese stock listings in the US remains uncertain, many startups have chosen a market closer to home.
But as of June 14, more than 920 companies were still in line for an IPO in mainland China and Hong Kong, according to an EY report. This was slightly changed from March.
“Pipelines remain strong in part due to a backlog of some delayed primary offerings since the first quarter,” the EY report said.
Sentiment in mainland markets has risen as Covid containment has eased over the past few weeks. Despite year-to-date declines of more than 6%, the Shanghai composite rose nearly 6.7% in June for its best month since July 2020.