The recent, repetitive, major stock market crashes in China have many concerned that a financial crisis within the country is looming.
The familiar trend of wealthy Chinese investors parking their capital in Canadian real estate and commodity investments is now very much including the Canadian technology sector.
This trend can be seen when one observes the growing numbers of Chinese private equity, and venture capital firms each year that attend the Cantech Investor Conference (Canada’s largest technology investor conference).
Chinese investors expanding their portfolios to include Canadian technology companies does not only have to do with avoiding the risks in their home economy but also because buying into the innovation that Canadian technology firms produce represent an additional, enormous return potential.
With the second largest economy in the world, this return potential stems from the extra value the Chinese can offer by helping their investees expand their market share throughout their home country. Chinese Private Equity investors can usually do this by utilizing their network of distribution channels throughout China, as well as offering a means to navigate the complex issues of cultural adoption, government regulations and avoiding copyright infringement.
The technology sectors that appear to have the largest advantage in entering the Chinese market include Information, Communication & Technology, Medical Devices, Cleantech, and Advanced Manufacturing.
With the rapidly growing middle-class (630 million expected by 2022) and the enormous demand of mobile technology, the demand for ICT will be huge. The market’s potential in this sector can be seen by the fact that Alibaba and Tencent have been able to become multibillion dollar corporations, rivaling Amazon and Facebook (both blocked in China), where the main source of their staggering growth came from the Chinese market.
The recent "red alert" in Beijing shines a light on China’s environmental problems, but also a huge opportunity for the cleantech industry. China is home to 16 of the 20 most polluted cities in the world. With the rise in price of carbon commissions within the New Global Climate Accord, the Chinese are in desperate need of technological innovation to address their environmental issues. Numerous areas including waste management, soil remediation, water purification and desulphurization, are good reasons why Chinese investors fill the booths of Cleantech exhibitors at events like Cantech.
Opportunities for Medical Device tech companies expanding into China is a “no brainer” when one considers its aging population (223 million will be over the age 65 by 2030).
Considering that China has built its economy as the ‘world’s factory’ the demand for Advanced Manufacturing makes perfect sense. The way China has earned this title is through its low labor costs via its peg to the US Dollar. As the middle-class grows, so will the wages of employees in the factories. In the meantime, competition from lower-cost countries like Vietnam and the Philippines threaten China’s ‘world’s factory’ title, therefore, investing in manufacturing technology, like 3D printing for example, will help the Country stay ahead of the curve from a technological standpoint.
As an exhibitor and a Venture Capital Investor at the Cantech Investor Conference in 2016, I expect, and look forward to seeing a further increase in Chinese attendees. Co-investing with them and sharing resources to expand our portfolio companies’ market share throughout China as well as North America, could prove to be a major opportunity for value creation and ROI for our Fund and our investors.