China set a record high in terms of venture capital (VC) investments in 2016, despite a global slowdown. The strong performance is expected to continue with artificial intelligence (AI) an additional focus for investors, finds latest KPMG analysis.
Investment by VCs in China increased 19 percent year on year to USD31 billion in 2016, although deal volumes declined 42 percent to 300 from 513 a year earlier, according to Venture Pulse, KPMG’s quarterly global report on VC trends. The strong performance is attributed to a number of mega-deals recorded early in the year.
The report highlights that artificial intelligence and cognitive learning are poised to transform almost every aspect of people’s lives. Consequently, VC investment across sectors in this space is therefore expected to be a key trend for the foreseeable future.
Egidio Zarrella, Partner, Clients and Innovation, KPMG China, says: “China is becoming a more mature economy. We’re seeing it move from being heavily reliant on agriculture and manufacturing to an economy driven by innovation and services. Over the next year, the world will recognize how much artificial intelligence is going to transform everything we do. For example, the amount being invested in artificial intelligence in Asia is growing by the day. 2017 will be the year investors will look at AI and say, ‘if you’re not investing in it, you’re missing the boat’.”
Globally, VC investment slid 9.4 percent in 2016 to USD127 billion, while deal counts dropped 24 percent to 13,665 deals as investors became more cautious about market uncertainties, valuations and exit opportunities through IPO. VC investment in Asia remained unchanged at USD39 billion in 2016, however, deal activities slowed down to 1,742 from 2,266 in 2015.
In terms of sectors, software, commercial services, consumer goods & recreation continued to draw the largest amount of VC investment.
Philip Ng, Partner and Head of Technology, KPMG China, says: “Investors in Asia are shifting their investment focus. While there has previously been a lot of attention paid to O2O, the second half of 2016 saw investors more focused on artificial intelligence, robotics and big data. There is also increased focus on fintech, education and healthcare related startups.”
Additionally, the report highlights that outbound VC investment from China is expected to continue at a solid pace as companies look to acquire technologies for use in the Chinese market, with the US likely to continue to gain the lion’s share of outbound investment, while Canada and Israel might also draw interest from Chinese investors.
Lyndon Fung, Partner, US Capital Markets Group, concludes: “In China, there is a lot of opportunity for entrepreneurs with creative solutions and business models to implement and launch their ideas to market quickly. Given the size of the population, this is particularly attractive to companies that can link their offerings to consumer spending.”
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KPMG China operates in 16 cities across China, with around 10,000 partners and staff in Beijing, Beijing Zhongguancun, Chengdu, Chongqing, Foshan, Fuzhou, Guangzhou, Hangzhou, Nanjing, Qingdao, Shanghai, Shenyang, Shenzhen, Tianjin, Xiamen, Hong Kong SAR and Macau SAR. With a single management structure across all these offices, KPMG China can deploy experienced professionals efficiently, wherever our client is located.
KPMG is a global network of professional services firms providing Audit, Tax and Advisory services. We operate in 152 countries and regions, and have 189,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.
In 1992, KPMG became the first international accounting network to be granted a joint venture licence in mainland China. KPMG China was also the first among the Big Four in mainland China to convert from a joint venture to a special general partnership, as of 1 August 2012. Additionally, the Hong Kong office can trace its origins to 1945. This early commitment to the China market, together with an unwavering focus on quality, has been the foundation for accumulated industry experience, and is reflected in the Chinese member firm’s appointment by some of China’s most prestigious companies.