China’s e-commerce start-ups lose favour with private equity funds as Beijing-backed chip makers steal their thunder, study finds

E-commerce and internet-related companies have lost their lustre with private equity (PE) funds as Beijing’s support for chip makers and high-end equipment businesses, considered the backbone of the country’s manufacturing sector, have made them more appealing to investors, according to Bain & Co.

A survey carried out by the global consultancy found that only 15 per cent of private equity funds focusing on China picked online retail and internet businesses among their top three investment choices for 2019. Across the Asia-Pacific region, that number rose to 29 per cent.

Last year, about half of the US$94 billion in PE investment in China was derived from the sector, Bain said.

“PE investors are shifting their focus from the internet to consumer-related businesses, pharmaceutical companies and those players dealing with high technologies such as machinery manufacturing and chip making,” said Zhou Hao, a partner at Bain. “Internet business has been growing at a rapid pace in China for a while and the growth will slow down.”

The findings by Bain came ahead of the launch of China’s eagerly-awaited Technology Innovation Board, via which Beijing hopes to grant funding access to the country’s most promising start-ups.

As of last week, 90 companies had applied for initial public offering (IPO) on the new Nasdaq-style board at the Shanghai Stock Exchange. They are mainly engaged in basic science, chip making, computing, robotics, new material and life science, with no e-commerce or internet firms in the running.