China surpasses North America in attracting venture capital funding for first time as investors chase 1.4 billion consumers

China surpassed North America in attracting venture capital for the first time in the second quarter, helped by a record US$14 billion fundraising round by Alibaba Group Holding affiliate Ant Financial Services.

Start-ups in China accounted for 47 per cent of the world’s VC funding in the three months ended June, compared with a combined 35 per cent for the US and Canada, according to a report by Crunchbase, which tracks and compiles fundraising data.

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The surge in China fundraising in the second quarter could be attributed to Ant Financial, which raised about US$14 billion last month. Investors, including Singapore’s GIC and Temasek Holdings, Warburg Pincus, Canada Pension Plan Investment Board and Silver Lake, took part in the fundraising, while existing shareholders supported a yuan-denominated tranche.

Excluding Ant Financial, China’s start-ups raised just slightly more than they did in the first quarter, taking up 36 per cent of the global total, according to Crunchbase. The financing brought Ant Financial’s valuation to more than US$150 billion, which is roughly double Uber Technologies’ valuation, the report said.

China has seen a surge in the number of start-ups in recent years as the government vowed to do more to implement an innovation-driven development strategy to make the country more competitive.

The pledge comes amid China’s renewed efforts to transform itself from the factory floor of the world into a global innovation powerhouse and echoes President Xi Jinping at the 19th Communist Party Congress, where he listed the internet, big data and artificial intelligence in his keynote address.

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Venture capitalists poured billions into areas from artificial intelligence to blockchain, lured by the prospect of backing the next Alibaba, Tencent Holdings or Baidu, while start-up founders aspired to become billionaires like Jack Ma Yun or Pony Ma Huateng. Alibaba is the parent company of the South China Morning Post.

At stake is a potential market of 1.4 billion consumers who are getting connected and increasing their spending on everything from entertainment to health care.

Personal consumption, medical and health treatment, and information and technology were among the sectors attracting the most funding in May, with early-stage investments being the hottest, according to data compiled by China-based research firm Zero2IPO.

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Indeed, the Crunchbase report may have underestimated the amount of fundraising going on in China because it tracks only relatively big rounds, according to the report.

Investment deals backed by venture capital reached a record US$182 billion globally in 2017, with the value up 28 per cent compared with 2016, even as the deal count dropped 4.7 per cent to 11,144, according to Preqin, a data service provider for the alternative assets industry.

The US dominated the rankings, drawing 42 per cent, or more than US$76.4 billion. Greater China ranked No 2, attracting 36 per cent of total deal value, with US$65 billion.