Third-quarter funding for China’s fintech hits a speed bump as state tightened reins on capital outflow

Online finance providers Dianrong and Shenzhen Suishou Technology each raised funding in the US$200-million range, topping fintech deals in Asia

PUBLISHED : Sunday, 22 October, 2017, 8:30pm
UPDATED : Tuesday, 03 July, 2018, 9:05pm

Total funding raised by China's venture capital-backed financial technology start-ups fell to US$800 million across 26 deals between July and September, a drop of 27 per cent from last year, as the central government kept a tight rein on capital outflows from this sector.

That amount was down from US$1.1 billion in the same period last year and below the US$1 billion recorded in the quarter to June, according to a recent online briefing by Lindsay Davis, an intelligence analyst at venture capital research firm CB Insights.

Davis said deal activity of mainland fintech start-ups in the third quarter dropped 19 per cent from 32 transactions recorded in the second quarter.

The downswing marred the sector’s strong performance in the three months to September, when mainland transactions dominated the top 10 venture capital-backed fintech deals in Asia.

Dianrong, the Shanghai-based operator of a popular online lending marketplace, recorded the region’s largest fintech deal last quarter – a US$220 million Series D funding round led by China Minsheng Investment, Singapore sovereign wealth fund GIC and South Korean private equity firm Simone Investment Managers.

That was followed by the US$200 million Series C financing round of Shenzhen Suishou Technology, which runs a personal finance management platform on the mainland. Its investors included Hong Kong-listed conglomerate Fosun International, global investment firm KKR & Co, Sequoia Capital China and Beijing-based venture capital company Source Code Capital.

“During the third quarter, we saw increased scrutiny of fintech companies and their links to capital outflow, as well as concerns over initial coin offerings, both of which impacted deal activity,” said Paul Haswell, a partner at international law firm Pinsent Masons.

China had imposed draconian measures to manage outbound payments and investments after its foreign-exchange reserves fell by nearly US$1 trillion over a period of two and a half years from their June 2014 peak. Reserves have stopped shrinking as a result.

The country’s foreign-exchange reserves climbed for the eighth consecutive month to US$3.1 trillion in September, up US$17 billion from August, according to the People’s Bank of China.

The mainland’s central bank last month imposed a ban on ICOs – unregulated fundraising through the issue of digital currency – for being illegal and fraudulent.

Haswell said the slide in third-quarter fintech deals was not indicative of a general decline in interest for such investments on the mainland.

“It’s just a blip,” he said. “Despite being the focus of so many investors, fintech is still a relatively new concept.”

The two other major mainland fintech deals last quarter were the US$117.6 million funding raised by Dashu Finance, an online lender based in Shenzhen, and US$45 million in financing received by Nanjing-headquartered Fangsiling, which offers rent instalment payment options to young professionals.