China’s economic growth rate at 6.6% in 2018 is the country’s slowest in the last three decades, the official data from the National Bureau of Statistics showed. Reports of massive layoffs, cutthroat competition, and market saturations are not painting a pretty picture either.
The job postings in the IT and Internet sectors saw a critical 51% year-on-year drop, according to The China Institute for Employment Research. The report published in Q3 2018 also highlighted the declining trend in the last two quarters.
Meanwhile, the after-hours work has become the unspoken standard in China’s TMT industry (technology, media and telecommunication). The debate over long hours picked up momentum after Bai Ya, CEO of e-commerce company Youzan, publicly endorsed the 996 (working from 9 am to 9 pm, 6 days a week) work culture. Zhang, a Huawei staff, told the Passage that 996 is already a norm in the industry except Youzan said it in open.
According to Pedata, an investment consultancy firm in China, the amount of money raised by early-stage investors fell 65.4% year-on-year in Q3 2018 and the number of deals dropped by 74.4%. On the startup side, the last four quarters from Q4 2017 to Q3 2018 saw an 11% decline in funds compared to the previous four quarters. Besides, the number of venture capital deals in China fell 25% percent year on year to 713 in Q4 2018, according to data research firm Preqin.
What’s more, the trade war with the US has amplified the ‘winter is coming’ chatter in the Chinese business circles.
Rhodium Group, a research firm tracking Chinese investment in the US, recorded an 84% nosedive in Chinese FDI in the US at USD 4.8 billion in 2018 as opposed to USD 29 billion in 2017 and USD 46 billion in 2016. “More restrictive Chinese policies, stepped-up US investment screening and deterioration of US-China relations had curbed Chinese investors’ appetite for US assets in 2017. In 2018 this slowdown deepened as new investment dropped to a seven-year low,” the report noted.
India has become the hotspot for startups after China and the US. At the same time, Chinese investments in India have risen at a compound annual growth rate of 23% to reach INR 123.6 billion (USD 1.7 billion) between 2000 and 2018 (as of March). “The US, and more recently China, have been investing heavily in start-ups in India as they have recognised the untapped potential of Indian markets which few other countries can rival. In addition to that, there has also been interesting companies coming up in deep tech, health tech, IOT, enterprise etc which are all signs of ecosystem developing with healthy breadth of companies,” said Ankur Pahwa, partner and national leader, e-commerce and consumer internet, EY LLP.
Chinese companies account for 42% of investments received under India government’s Invest India agency, according to a KPMG report.
"Early stage venture capital is a lot less influenced by macroeconomic and geo political issues. Venture-capital tends to go to sectors and regions where the risk-reward trade-off is most attractive. In India we are seeing a whole generation of users come online via the mobile Internet for the very first time." Shripati Acharya, Managing Partner, Prime Venture Partners, explained, "From that standpoint it is an unprecedented opportunity. And I think that is the reason why risk capital from China (and other international investors) is coming towards the Indian ecosystem."
Pahwa said the slowdown in China would mean a greater focus on India. “But it doesn’t mean more investments - which is where developing the ecosystem plays a big part in attracting investments,” he added.
Satish Meena, an analyst from Forrester Research, said it would take time for the Indian market to capture and digest the investments. “There are not enough big fishes like OYO that actually have the volume to accommodate that kind of funding,” he said, “The investment will come but it's not like you just open a tap and everything will flow to India. It's going to be a gradual shift.”
Alok Goyal, partner at Stellaris venture, is bullish on Indian venture market’s global scale. He believes the slowdown and China-US trade conflict are good news for India in terms of foreign investments. “Chinese money will be of particular interest to Indian companies as well as funds as they will bring expertise of a market with some similar characteristics,” he said.
Satish also stressed on the same idea. “With the similarities, they know how to cater to the Indian audience”, he said. China’s Xiaomi, which is shifting focus from the saturated market in China to copy the whole MI ecosystem in India, is a good case in point, he added.
India could become the hotbed for Chinese companies. “The investment trend in 2019 should pick up. Last year, most of the funding went to companies that have shown some capability to scale up,” Satish said. The statistics also back this claim. Though both the number of deals and the total amount of investments has dropped, the average money in each deal increased by 22.7% year-on-year in Q3 2018.
On the other side of the track, Hanson, a Chinese investor from Morningside Capital, said they neither cut down on the investment capital last year nor faced issues in raising funds. “Actually there have been several quite big investments in China. We have been very positive about Chinese market. We also plan big on Indian market, but that has nothing to do with the declining trend of China’s domestic investment. What matters is still the profile of the individual company,” he added.