The tech sector in China has gone through a tumultuous year 2021, between repression of digital giants like Alibaba, Tencent, Didi and American sanctions. Yet the Wall Street Journal notes record levels of investment in the Middle Kingdom, reflecting a strategic reorientation of the authorities in the field.
In 2021, internet services have been abused in China
$ 129 billion invested in more than 5,300 startups in 2021, according to the Preqin investment database which tracks venture capital operations in China, this is a record. The previous peak was $ 115 billion in 2018. With a broader base, including private equity funding, the number reached $ 165 billion in the first three quarters of 2021 according to the PE Data database, owned by by Zero2Ipo. The full results could surpass the record of $ 190 billion reached in 2017.
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These data may seem paradoxical. When the Chinese tech sector is mentioned in 2021, it was above all for the appearance of new regulations limiting the activity of Chinese digital giants. Record antitrust fine against Alibaba, control of data exploitation with the PIPL, leading to the suspensions of hundreds of applications, endangering the IPO of Didi in New York …
The sector was also agitated by exogenous elements. The trade war between the United States and China, started by the former in 2019 against Huawei’s dominance in the 5G market, has run its course. Dozens of companies and startups have been blacklisted to contain Chinese technological advancements. The American blacklist rhymes with a ban on access to American equipment, licenses and capital.
2021 has indeed cost the Chinese giants dearly. Stock prices of Alibaba, Tencent and others collapsed causing losses in the billions of dollars. Beijing seems to take care. The boom period from 2016 to 2020 when the emergence of Chinese internet services was a priority is over.
The “hard Tech” national security issue for Beijing
For China these are no longer national priorities, the new five-year plan for the technological development of the country is interested in other areas, those of “hard Tech”. Semiconductors, biotechnologies, information technologies are now privileged. Research and development spending in these sectors must increase by 7% per year, which is more than for the Chinese People’s Army.
Chips, artificial intelligence, quantum computing, software, these cutting-edge technological fields have become issues of national security. China intends to surpass the United States in AI and quantum. A prospect which does not fail to worry in Washington. For semiconductors, the stake is that of the sovereignty of the Middle Empire. Beijing is the largest importer of chips in the world, the country buys more of them than oil.
A problematic situation highlighted by the global shortage of semiconductors and the conflict with the United States. This weakness of China is very well identified in Washington. The Biden administration is working to limit exports of the most advanced chips across the Pacific.
Investors follow
Investors tend to follow Chinese public policy according to the Wall Street Journal. Investments in the internet sector fell to 4th position in terms of attractiveness in 2021 with 20 billion in funding. According to PE Data, the semiconductor industry has reached $ 30 billion.
The hard tech industry tends to take longer to turn a profit, but once mature, the returns on investment are there. China is trying to back it up. The Beijing Stock Exchange, launched in November, favors small companies in advanced technologies. The STAR Market, the Nasdaq of the Shanghai Stock Exchange, has revised its rules to promote the listing of Hard Tech companies.
China still has a way to go to achieve autonomy in semiconductors. The battle with the United States for AI, quantum supremacy and biotechnology promises to be fierce. The year 2021 has shown that China is capable of deploying big means to achieve its ends, in particular in the sector of new technologies.