China records eight out of Asia's top ten venture capital deals in Q2, sees increase in deal volume and investment, finds KPMG analysis
VC investors in China to focus on domestic investment
Digital platform businesses continue to attract interest
HONG KONG, July 29, 2020 /PRNewswire/ -- China saw an increase in both deal volume and venture capital (VC) investment in Q2'20 compared with Q1'20, reflecting early signs of a recovery in the region's VC market, and accounted for eight of the top 10 largest deals in Asia Pacific, according to KPMG analysis.
KPMG's Venture Pulse Q2 2020 report finds that large platform companies in China began to resume investment activity in April. VC investment in China amounted to USD 12.7 billion across 633 deals, up slightly from 530 deals totalling USD 9.1 billion in the first quarter. Asia Pacific as a whole saw 1,011 VC deals in Q2'20, which amounted to a total deal size of USD 16.9 billion, broadly similar to the previous quarter when 1,044 deals were completed with a total deal size of USD 17.4 billion.
Egidio Zarrella, Partner, Head of Clients and Innovation, KPMG China, says: "COVID-19's impact on travel and global supply chains combined with the ongoing market turbulence is causing many investors to refocus on local market opportunities. This could lead to an upswell in domestic VC investment over the next quarter."
Q2'20 saw a number of large-scale deals in China, such as biotech MGI Tech and Didi Bike raising USD 1 billion each, a USD 750 million raise by edtech Zuoyebang, USD 500 million for Didi Autonomous Driving and USD 400 million for produce delivery company Xingsheng Selected. This heavy focus on digital businesses lays the foundations for a rise in VC investment in China in Q3'20, with investors likely to remain interested in areas like 5G, smart cities, IoT and health care innovation.
The COVID-19 outbreak has supported a rise in digital business models, with investors showing interest in artificial intelligence, data analytics and cybersecurity solutions that are able to assist with monitoring the spread of COVID-19 and with tracking, tracing and isolating individuals.
Philip Ng, Partner, Head of Technology, KPMG China, says: "Digital business models were a hot area of investment in China during Q2'20 – particularly in areas of digital payments, e-commerce, remote office solutions, cybersecurity, digital health, and track-and-trace solutions for managing disease spread. These sectors will likely remain attractive for VC investors heading into Q3'20 – with digital health innovation expected to be a long-term investment trend given the increasing challenges in the space."
Meanwhile in Hong Kong SAR, despite the ongoing uncertainty related to COVID-19, the Hong Kong Stock Exchange saw a solid performance in Q2'20, attracting two secondary listings from major Chinese companies, namely JD.com, which raised almost USD 4 billion, and NetEase, which raised USD 2.7 billion.
Irene Chu, Partner, Head of New Economy and Life Sciences, Hong Kong, KPMG China, says: "We have seen positive activity despite the current situation with several successful IPOs and secondary listings. This strong momentum and sentiment in Hong Kong and mainland China's capital markets in Q2 is expected to continue into the second half of 2020. I expect VC and PE activities in the region to pick up in the coming quarters as China will not only continue its economic recovery from the pandemic but focus on investing in new infrastructure to support the digital transformation of the economy."
About KPMG China
KPMG member firms and its affiliates operating in mainland China, Hong Kong and Macau are collectively referred to as "KPMG China". KPMG China is based in 26 offices across 24 cities with around 12,000 partners and staff in Beijing, Changsha, Chengdu, Chongqing, Foshan, Fuzhou, Guangzhou, Haikou, Hangzhou, Jinan, Nanjing, Ningbo, Qingdao, Shanghai, Shenyang, Shenzhen, Suzhou, Tianjin, Wuhan, Xiamen, Xi'an, Zhengzhou, Hong Kong SAR and Macau SAR. Working collaboratively 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 147 countries and territories and have more than 219,000 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 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 firm can trace its origins to 1945. This early commitment to this market, together with an unwavering focus on quality, has been the foundation for accumulated industry experience, and is reflected in KPMG's appointment for multidisciplinary services (including audit, tax and advisory) by some of China's most prestigious companies.