The Next Big Thing

No China tech bubble in sight as growth potential outweighs valuation risk: expert

PUBLISHED : Tuesday, 28 April, 2015, 7:01am
UPDATED : Tuesday, 28 April, 2015, 11:38am

The mushrooming number of start-ups in China, surging valuations for companies like e-commerce giant Alibaba and smartphone maker Xiaomi and the government’s push via its “Internet Plus” strategy to transform the economy to a digital one has raised some concerns that the country could be heading for an internet bubble like that of 15 years ago in Silicon Valley.

One of the country’s most experienced information industry (IT) consultants doesn’t think so.

“It’s too early to say there’s bubble in Chinese IT industry. Or if there is, the risk is manageable,” said Yang Weiqing, the co-founder and president of iResearch.

“The internet industry is emerging in China. Compared to a stable market like the United States, there are more opportunities here,” Yang, 39, said in a recent interview with the South China Morning Post in Beijing.  

According to a report by Yang’s firm, 648 million Chinese internet users are contributing to a market worth more than US$213 billion. Beijing is keen to boost the IT industry partly because the government must speed up its efforts to transform its economy from an export-driven one to a model fuelled by domestic consumption and innovation.

Online spending in China has been on a rapid rise, thanks to the fast growth of e-commerce led by homegrown industry leaders like Alibaba.

Some other start-ups have seen rapid rises, such as Shenzhen-based DJI, already the world’s largest commercial drone maker and about to have a valuation of US$10 billion when it completes its latest round of capital-raising.

But Yang also noted that the ratio of private equity and venture capital invested in China’s IT industry to the country’s GDP is much smaller than it is in the US. According to a research report by Primavera Capital Group, the ratio is 0.5 per cent in China and about three per cent in the US.

Yang founded iResearch in 2002, specialising in research on the online media, e-commerce, online games, big data and internet banking sectors.

The company works with large Chinese websites and portals to analyse Internet users’ behaviour. It has also taken part in government consultations on issues related to economic transformation and how the IT industry can play an important role in that change.

He acknowledged that there is risk in China’s IT boom, saying that the phenomenon of huge capital raisings by some Chinese start-ups has driven the rush.

“One problem was that the value of some start-ups was evaluated too highly during Series A to Series C financings,” he said.

“But that does not mean the rise of start-up in China is a bad thing."