China dominated Asia’s subdued venture capital market in the second quarter, as state-backed investors poured money into sectors such as artificial intelligence (AI), electric vehicles (EV) and semiconductors. China accounted for six of the top 10 venture-capital investments in the Asia-Pacific region, according to a report by KPMG. A total of 2,155 deals worth USD17.4 billion were reached in the three months to June. The deal volume, however, was 16.3% lower than in the previous quarter. New energy vehicles (NEVs) and semiconductors were among the hottest sectors in China. EV maker Neta Auto raised USD693 million, while CRRC Times Semiconductor scooped up USD599 million. AI companies continue to gain traction in China, even as investors tread cautiously. Top deals in this sector include USD528.7 million raised by Zunyuan Supermarket, a retailer that incorporates AI, followed by generative AI company Zhipu AI at USD400 million.
“The AI space continued to attract strong venture capital investment in China during the second quarter of the year, with investors showing particular interest in AI-driven applications,” said Zoe Shi, Partner at KPMG China. The number of AI focused start-ups has “grown considerably” over the past year, and the big question now is which of these companies will be able to produce results and successfully commercialize their offerings, she added. China has been pumping money and vast state resources behind companies in strategic sectors like semiconductor and AI, as its technology war with the U.S. escalates.
In May, Beijing set up a CNY344 billion state-backed investment fund to bolster its semiconductor industry. The China Integrated Circuit Industry Investment Fund is the largest of the three chip investment funds that have been launched so far by the government. The previous two funds raised CNY204 billion and CNY138.7 billion in 2019 and 2014, respectively.
“Venture capital investors in China showed no rush to dive into making major deals during the second quarter, taking as much time as needed to conduct due diligence and, in some cases, delaying decisions to see how targets preformed for a longer period,” said Angela Chiu, Director of deal strategy and M&A at KPMG China. “To spur investment, local governments have provided significant matching funds aimed at companies focused on areas of strategic importance,” she added. Looking ahead into the third quarter, AI and EV are expected to continue dominating venture capital investments in China, owing to generous state support, according to the KPMG report. While deal activity remains lackluster, the initial public offering (IPO) market could see a rebound in 2025 as many Chinese companies prepare to go public, the KPMG report added, as reported by the South China Morning Post.
