Where The Money’s Headed: China’s Tech Investment Trends of 2022by@bigmao
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Where The Money’s Headed: China’s Tech Investment Trends of 2022

by susie liuMarch 2nd, 2022
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China’s tech startups flourished in 2021, receiving a record $131.6 billion in VC funding, up 50% from 2020. Major investments were made into industries such as electric vehicles and semiconductors. Alternative proteins will likely attract major investments in 2022, thanks to a new category titled “Optimizing the Development Strategy of Agricultural Science & Tech” in the state's 14th Five Year Plan. China has over 1.4 billion mouths to feed, and a countryside that features only 0.21 acres of arable land per capita.

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When the Chinese government launched a widescale crackdown on the tech industry last summer, valuations took a nosedive and venture capitalists zipped their pockets. Some speculated that the country’s innovation streak would fizzle out. But despite tightening regulations, China’s tech startups flourished in 2021, receiving a record $131.6 billion in VC funding, up 50% from 2020. Major investments were made into industries such as electric vehicles and semiconductors – the country’s chip startups raised a record $10.8 billion, up 47% yoy (by comparison chip companies across the globe raised a total of $19.4 billion). While Beijing might have a tougher stance in terms of regulations, it’s also clear that homegrown innovation and technological self-reliance are at the top of the government’s agenda. That’s why China’s entrepreneurial fervor and investor confidence is at an all-time high, with no signs of losing steam. So, what industries will be attracting the big money this year?

1. Agrifood

China has over 1.4 billion mouths to feed, and a countryside that features only 0.21 acres of arable land per capita (by comparison, the United States has 1.23 acres per capita). China’s total food demand will likely increase by 16-30% by 2050 and meeting this demand will require up to 12,000 square km of additional agricultural land within China and up to 175,000 square km outside of China based on projected reliance on imports. But further conversion of land to agriculture is incompatible with the nation’s goal of ending biodiversity loss and would result in up to 16% growth in domestic agricultural emissions. So, limited farmland coupled with official goals of “moderate (food) imports” and carbon neutrality means that investment in innovations across the food supply chain, from precision agriculture, crop and animal health to alternative proteins and nutrition are critical to ensuring the future population will be properly fed.

Alternative proteins will likely attract major investments in 2022, thanks to a new category titled “Optimizing the Development Strategy of Agricultural Science & Tech” in the state’s 14th Five Year Plan, under which the importance of innovation in the plant-based egg, milk, and protein spaces, as well as emerging technologies like cultured meat is highlighted. Alternative proteins serve two strategic purposes: first, China’s goal is to reach carbon neutrality by 2060 and alternatives to traditional animal products will be part of the solution. Chinese companies represent 40% of the market cap of the world’s 60 largest publicly listed protein producers, but of the 12 Chinese companies included, 10 ranked as “high risk” in the Coller FAIRR Protein Producer Index, which assesses firms on environmental, social and governance (ESG) risks and opportunities (28 out of 48 companies outside China ranked as “high risk).

But the other (perhaps more important) purpose of alternative proteins is to help in reducing China’s reliance on food imports. In 1990, per capita meat consumption in China was 25.8kg. In 2020, that number has risen to 44.4kg, and will continue to grow –the demand for ruminant meat and dairy products is projected to almost double by 2050, driven by rising incomes and a growing urban middle class. As demand for meat, eggs and milk increases, so does the need for traditional animal feed such as soybean meal and corn. But China can’t produce enough feed grains like soybeans and corn to support its large and rapidly growing livestock industry – that’s where the food imports come in. In 2021, China’s corn imports grew by 152% to a record 28.35 million tons, of which 65% was used for feed. Shifting a portion of demand from meat, eggs and dairy to plant-based alternatives would be able to reduce the reliance on imports.

Recent raises

  • Starfield Food & Science – The Beyond Meat of China. A plant-based meat startup that has closed $100m USD in its Series B in January 2022, China’s biggest alt-protein raise to date. It’s partnered with over 100 brands and its products are now available both online and in more than 14,000 retail outlets across China.
  • Joes Future Food – Closed $11m in Series A in October 2021. The first company in China to have successfully produced cell-cultured meat. They’ve created a FBS serum-free cultivated minced pork and invented a cultured meat production scaffold containing a micro-pillar array.
  • CellX – Closed $4.3m in seed in September 2021. Recently debuted their 3D printed cell-based pork.
  • Levinthal Biotech – Closed $2m in seed funding in February 2022. Founded in September 2021, Levinthal provides AI-driven protein design services for enterprises in the fields of food, feed, and environmental protection.

2. Biotech

As the world’s second largest healthcare market, China faces many health challenges, including high medical care costs, a rapidly aging population, and resource disparity between urban and rural areas. Healthcare reforms rolled out over the past decade have repeatedly listed biotech as a “strategic pillar” for meeting the state’s ambitious goals of broadening healthcare access and delivery. In addition, a growing affluent middle class that is willing to spend more on quality healthcare is also pushing demand for biologics, which have fewer side effects than chemical drugs.

While biotech has attracted a good amount of investor interest over the past few years, developments in 2021 have set the stage for 2022 to be a breakthrough year for fundraising.

US-China Relations

There’s a misconception that the world relies on China for pharmaceuticals. While the country does account for a large proportion of the world’s generics and APIs (active pharmaceutical ingredients) exports, China is highly reliant on imports of finished drugs, particularly new generation biological drugs used to treat diseases like cancer – the leading cause of death in China. Here’s a pretty startling number: in 2020, 90% of cancer drugs in China were imported. In 2016, it was 94%.

The rivalry between the US and China reached new heights in 2021, and it’s likely that tensions will continue to escalate in 2022. The growing geopolitical tension puts more pressure on China to accelerate its efforts to move beyond reliance on foreign imports in critical industries, and biotech pharmaceuticals is at the top of that list.

Returns On Investment

Early investors in Chinese biotech startups saw big returns last year. First, a record number of biologics approvals: the number of antibody drugs, recombinant protein drugs, blood products, and cell and gene therapies that were approved and launched in 2021 was 6 times that of 2020. Biotech IPOs also hit an all-time high, with 121 companies going public, up 75% from the previous year. The combination of approvals and hot IPOs has boosted investor confidence, and it’s evident that enthusiasm is spilling over to 2022 – in the first two weeks of January, 12 Chinese biotechs have already raised a combined $1.1bn.

International Recognition

The major out-licensing deals of 2021 are proof that China’s biotech sector is coming of age and have given investors a final confidence boost. In 2021, there was a total of 53 outbound out-licensing deals, more than double the amount in 2020. Major deals include the $2.6 licensing deal between Rongchang Biology (parent company of RemeGen) and Seattle-based Seagen and Novartis’ strategic collaboration agreement with BeiGene to in-license their PD-1 tislelizumab in major markets outside of China for $2.2 billion.

Recent raises

  • HemaCell Therapeutics – Closed $15.8m in Series Pre-A in February. Founded in 2021, HemaCell focuses on stem cell therapy.
  • Imbioray Biomedicine – Closed $36.4m in Series A in February. Imbioray aims to be a leader in the CAR-NK cell therapy space (a type of immunotherapy for cancer)
  • GluBio Pharmaceuticals – Closed nearly $50m in Series A in February. Focuses on using molecular glue degraders to develop new-generation drugs.
  • Genhouse Bio – Closed over $20m in Series B in February. A clinical-stage biotech company focusing on the development of global next-generation anti-cancer therapeutics.
  • ZhenGe Biotech – Closed $100m in Series C in January. A CDMO (contract development and manufacturing company) focused on monoclonal and bispecific antibodies, antibody drug conjugates (ADCs), fusion proteins, and vaccines.

3. Metaverse

China’s crackdown on big tech isn’t extending to the metaverse. The state sees the metaverse as the next internet battleground and big steps have already been made in the first two months of 2022 to signal their determination. In February, China announced the inclusion of 17 new companies to its Metaverse Industry Committee, a group whose goal is to “promote the healthy, orderly and sustainable development of the metaverse”. And while China may have shunned crypto miners, blockchain technology is still a high priority. On January 30, the Central Cyberspace Administration of China (CAC) announced that the country is going to speed up blockchain development and innovation across 15 pilot cities and 164 entities. China also has its own infrastructure for NFTs, with the government-run Blockchain-Based Service Network (BSN) releasing its own NFT platform on January 25.

Metaverse-related investment was pretty messy in 2021. Investors were throwing money at just about any venture that had the concept of the metaverse in their pitchbook, which culminated in a state-issued warning against metaverse fraud. 2022 should see a bit more order and structure, with capital being directed into four main areas:

  • Key technologies – companies that provide underlying technologies that form the basis of the metaverse, for example, blockchain, cloud and edge computing, AI, and 3D modeling.
  • Infrastructure – 5G, semiconductors, and chips are the main focus here, as low latency and computing power will be critical to the use experience. Tech giants including Baidu, Tencent, Meituan, and Alibaba have either been developing their own chips, or have invested heavily in semiconductors.
  • Hardware – AR/VR gear, smart wearables, and omnidirectional treadmills are the most popular. Since investing in Magic Leap in 2016, Alibaba’s been extremely keen on hardware, and it sees the metaverse as the perfect chance to transform itself.
  • Applications – mainly games, social platforms, and digital marketplaces. 2022 could be the year that virtual humans take off in China, especially since a virtual broadcaster was featured in the recent Beijing Olympics. Tencent, Bytedance, and NetEase have all made significant investments into metaverse applications and are continuing to develop their own.

Recent raises

  • Axera – Closed $126m in Series A++ in January. A semiconductor start-up focused on developing advanced AI chips for computer vision applications.
  • Taichi Graphics – Closed $50m in Series A in February. A 10-month-old startup focused on making 3D content creation easier, and one of the few open-source projects in China. It operates Taitopia, a cloud-based platform for 3D graphics creation – a sort of “Figma for 3D content”. Its open-source programming language Taichi offers a high-performance computation on spatially sparse data structures like those from 3D visual graphics.
  • Mysterious Oasis – Closed a few million in its angel round in February. A marketplace for digital art and collectibles.
  • Guangli Technology – Closed over $15m in Series A+ in January. A startup focusing on the development of consumer AR glasses that fuse advanced optical tech with AR. Released Holoswim holographic smart goggles in September 2021.

4. Robotics

The labor market in the world’s second-largest economy faces some big challenges. After decades of growth, rising wages are eating into profits and pushing manufacturing to Southeast Asia. For example, Shanghai’s minimum monthly wage (the highest in China) has more than doubled over the past decade to around $367 USD. An aging demographic also necessitates automation. China currently has a working-age population (people between 15 and 64) of 998 million, but this number could drop to 800 million by 2050. But automation serves more than just a replacement for low-skilled labor – it’s also a strategic move to transform and upgrade China’s production capabilities to attract more advanced and higher-end manufacturing and leave the days of cranking out labor-intensive goods behind.

The Chinese robotics industry has grown at a rapid pace since President Xi called for a “robot revolution” back in 2014, averaging 15% growth yoy between 2016 and 2020. But 2022 could be the year the nation gets into full gear. In late December 2021, the Ministry of Industry and Information Technology announced its 2025 goals for the robotics industry:

  1. Double China’s manufacturing robot density from 246 units per 10,000 people (almost double the global average) to 492 units per 10,000
  2. Reduce imports of robots from 60% to 30%
  3. Become a global robotics innovation hub

Here’s the thing about China: quantitative KPIs aren’t often released, but when they are, it’s basically the government signaling to the private sector to throw everything but the kitchen sink to ensure that those KPIs are met.

Automation has been concentrated in the automotive, electronics, and e-commerce industries, but going forward we’ll likely see the focus shift towards developing more advanced robots for agricultural, medical, aerospace, and mining purposes.

Recent raises

  • Milebot Robotics – Multi-million Series B+ in February. Focused on exoskeleton rehabilitation robots.

  • Ruichu Technology – Nearly $16m in Series A in February. Focused on developing medical robots for tumor surgeries and precise puncture robotics systems.

  • Fourier Intelligence – Closed $62m in Series D in February. Specializes in neurorehabilitation robots, and also runs an intelligent healthcare robotic platform called RehabHub.

  • AIForceTech – Multi-million Series A+ in February. The company makes smart agricultural machinery and robots leveraging AI and its own autonomous driving technology.

With Chinese startups raising $6.5bn in VC funding in January alone, 2022 is already on track to being a record-breaking year.