Despite a quiet quarter for the venture capital (VC) market globally, China continued to account for the largest share of VC funding in Asia in Q3 2023, with eight of the largest 10 deals completed in Asia, according to a recent report.
In Q3, VC-backed companies in the Asia region raised US$20.3 billion across 2,582 deals, notes KPMG’s Venture Pulse Q3 2023 report. And despite soft investment compared with historical norms, China captured the lion’s share of the region’s funding, most notably with US$1.87 billion raised by GTA Semiconductor, US$1 billion by Rox Motor and US$969 million by Neta Auto.
“We continue to see sizeable investments into the areas that align with the long-term strategic priorities of the Chinese central government,” says Egidio Zarrella, partner, clients and innovation, KPMG China. “From semiconductors to clean technology to electric vehicle (EV) production – venture capital investment continues to focus on key industries that support China’s long-term ambition and desire for self-reliance.”
EV-focused companies in China have matured quite rapidly in recent quarters, with a number now starting to look beyond the domestic market to fuel growth.
VC investors in China also showed significant interest in new materials, from materials used in EVs and semiconductors to materials related to chemicals. Broader energy solutions also remained high on the radar of investors in China, with some solar-focused companies considering expansion efforts, investments and partnerships in Southeast Asia and in the Middle East.
“EVs are a very hot topic in China recently, and we are seeing a number of OEMs [orginial equipment manufacturers] going overseas to show off their new cars and models,” shares Zoe Shi a partner, KPMG China. “These companies aren’t only focusing on the China market anymore, even with our big population. They are also looking at the European market and at other Asian countries as markets for additional growth.”
The interest of VC investors in artificial intelligence (AI) continued to grow in Asia during the quarter, mirroring interest in other regions globally. The rapid evolution of generative AI (GenAI) over the last few quarters, however, has led to an increasing regulatory focus on the space, particularly in China.
During Q3, the Cyberspace Administration of China enacted high-level guidance to help foster and govern the evolution of GenAI in the country, with a particular focus on ensuring data security and appropriate controls.
Fintech gained some attention in Hong Kong during the quarter, driven by a US$458 million raise by wealthtech Micro Connect. The Hong Kong Monetary Authority also released a new fintech promotion roadmap to support and foster fintech adoption. As Hong Kong continues to encourage a more digitized financial services environment, there will likely be, the report suggests, additional fintech investments.
IPO activity during the quarter in Hong Kong and mainland China remained soft. China Securities Regulatory Commission introduced a number of measures to help improve the performance of its stock market, support the secondary market in the country, improve liquidity and support innovative companies in specific industries.
On the other hand, Hong Kong Exchanges and Clearing also opened an office in London in order to expand its reach, better engage with investors and funds in the UK and Europe, and foster a more connected investment environment globally.
“Global market conditions are affecting activity here in Hong Kong, but the fundamentals of the market are still very sound and the Hong Kong financial system is still stable,” adds Irene Chu, partner and head of new economy and life sciences, Hong Kong SAR, KPMG China. “We are seeing a lot of effort by the government, regulators and the Hong Kong Stock Exchange to engage with investors, funds and institutional investors in different parts of the world.”
