China is emerging as a global hub for innovation in technology and entrepreneurship. That's not the conclusion of any official report, but a tally of global venture capital investments in 2015.
Eager investors poured a record $37 billion into Chinese startups last year, the vast majority being in the booming tech sector. Now for more on this, we are joined in the studio by my colleague Wu Haojun.
Q1. What makes the Chinese tech sector so attractive to venture capital?
Well to answer that question, we have to first take a quick look at just exactly what venture capital is. When people talk about venture capital, they are essentially talking about one type of investment.
The type that focuses on early-stage and emerging growth companies which, naturally, involves more risk. Now here's a mental picture, if you're a multi-national looking to expand your operations abroad, don't even bother to look for VC.
But if you're a small businessman with a secret noodle recipe looking to take your business online, and if you're lucky enough, you just may get your round of venture capital investment. Now with that out of the way, according to London consultancy Preqin, venture capitalists from around the world poured a record US$37 billion into Chinese start-ups last year.
That's more than double the previous year's tally. The impact of all that money? It's turning quite a few of those "noodle stands" into "multinationals". Here are just two prominent examples. Smartphone manufacturer Xiaomi and ride-hailing service Didi Kuaidi.
These are now household names not just in China but internationally. They are two good examples of the scale and the impact of China's venture capital boom in the past few years.
Q2. These two are certainly cases of success, but there actually has been a sharp drop in investments towards the end of 2015. Does that spell a trend?
Well it may be too early to call it a trend but that is definitely the fear of Chinese start-ups. New figures from the end of 2015 show that the wave of venture capital investments that have been fuelling the growth of Chinese start-ups may be coming to an end, or at least slowing.
VC investment fell 40% in the fourth quarter from the level in the third quarter last year. And many say they are not at all surprised by the deceleration in investment towards Chinese start-ups. Some say it's just been "too much, too soon".
Last year alone, venture firms invested in a total of 1,555 China deals. There are concerns that too many startups have been set up in certain sectors in China. Ride-hailing is one such example, triggering costly price wars to win customers.
However, there are others who brush off such concerns, saying as long as there is innovation, there will be investment. And judging by the way Chinese venture capital investment has been fast catching up to that of the U.S., that means Chinese innovation won't lag behind for long either.
