China, the world’s second largest breeding ground for unicorns, will likely see another wave of tech initial public offerings (IPOs) despite slowing economic growth and ongoing tensions with the US.
“We believe tech IPOs will be the next big wave, as Chinese unicorns mature,” said Vincent Chan, head of China equity strategy at Credit Suisse, at the Emerging Companies Conference in Beijing on Monday.
The wave is pushed in part by the Hong Kong exchange’s efforts last year to reform its listing rules to allow weighted-voting-rights as well as the soon-to-be-launched Shanghai tech board. Chan noted there is strong investor appetite for high-growth, new-economy companies such as those in technology, internet, and biotech.
Chan said internet companies may still continue to dominate the tech space, but artificial intelligence (AI), big data, and biotech companies will start catching up.
“Emerging companies in China have achieved unprecedented growth and scale over the past two years. Unicorns are getting younger and growing faster,” Chan said, adding that nearly half of them reached the coveted unicorn status within two years.
It is inevitable that the impact of the escalating tensions between China and the US will take a toll on the burgeoning emerging tech industry, but it is too early to tell the extent of it.
So far, the trade war centers around core tech capabilities such as computing power, said Kyna Wong, head of China technology research at Credit Suisse. It is difficult to see how big the impact is on China’s tech development beyond Huawei’s recent woes, Wong said, but if the US is determined to thwart China’s core technology development, then it will take China a very long time to recover even though homegrown players like Huawei, Bitmain, and Cambricon have started developing their own chips.
Chan also noted that Chinese companies will likely seek to keep their core technology development within the country, something easier said than done—it will slow down product development and increase costs. It is inevitable that the “trade war effect” will kick in and companies will have to face it over the next couple of years.
Despite economic slowdown and the chilly winds sent by a financing winter, Chan said China’s venture capital funding has grown tremendously over the past five years to a level close to the US. The ability for high tech companies to get funding will continue to be much easier compared with others, especially from the government.
Cutting edge tech innovation, Wong said, will still be attractive in the eyes of investors; however, those that fall behind in innovation and research and development (R & D) will have a noticeably more difficult time getting funding from investors. AI, semiconductor, cloud computing, internet, and software technology-related companies have received some support and subsidies from the government over the past few years.