Chinese tech companies have been going public at a rapid pace, but poor stock market performance could slow the flood.
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By Aaron Pressman, Adam Lashinsky, and Clay Chandler
August 1, 2018

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We’re trying something new with Data Sheet today. The lead essay is by Clay Chandler, Fortune’s Asia editor, bringing a different perspective to the tech beat.

Greetings from Hong Kong, where it is hotter than the inside of a bamboo steamer and Typhoon Jongdari looms ominously in the distance. And yet, here in The Greater Bay Area (that’s right, the other bay area) it seems like the only season techies want to talk about is winter. As in: “capital winter.” A lot of smart people say it’s coming soon to China.

Don’t get me wrong. It’s not like a horde of Chinese entrepreneurs has taken the black, scaled the Great Wall, and are now moodily scouring the horizon for White Walkers Game of Thrones style. But there’s been a significant shift in mood. I’m hearing uncharacteristic expressions of caution, anxiety, and sometimes even humility from a group of folks whose outlook hitherto I’d describe as maximum bullish turned up to eleven.

More on that below. But first an introduction: I’m Clay Chandler, Fortune’s Hong Kong-based Asia editor and co-chair with Adam of the new Fortune Global Tech Forum, which we’ll host in Guangzhou, China November 29-30. On Saturdays, I chime in on China issues over on Alan Murray’s CEO Daily. Adam and Aaron have invited me, beginning this week, to focus on Chinese tech issues here in Data Sheet each Wednesday. I will try to keep you up to speed on key China tech developments—and preview issues we’ll be exploring in Guangzhou. Send your comments and feedback. We’d love to hear from you.

Now about that China chill. New York Times technology writer Li Yuan surveyed the sudden “climate change” for China tech investments here. She recounts the plight of three young men who raised $45 million almost effortlessly for a tech venture fund in 2016, but this June decided to close the firm. The problem: a sudden dearth of investors and promising ventures. She wonders whether the sudden scarcity of venture funding in China “may be a symptom of a widening malaise” in the economy.

Warnings that China’s red hot tech sector might be cooling began in spring, as investors and analysts started to notice the number of Chinese tech startups planning IPOs. China is home to more than 70 unicorns; nearly two dozen were waiting to raise money on public exchanges. The queue included some of China’s heftiest startups: Tencent Music, estimated to be worth about $25 billion; Didi Chuxing, estimated to be worth $80 billion; and the biggest prospect of them all, Ant Financial, the Alibaba Group affiliate said to have a valuation of $150 billion.

In April, the Wall Street Journal fretted that investors risked getting crushed in the Chinese tech IPO rush. Bloomberg considered it a “bad omen” that two-thirds of the 21 China tech IPOs that debuted in 2017 have dipped below their issue prices. This year’s IPOs have hardly improved the feng shui. ZhongAn Online and PingAn Good Doctor, which listed on the Hong Kong exchange, have been trading well below their IPO price. On the Nasdaq, shares of iQiyi, a video-streaming platform, peaked in mid-June. Pinduoduo, which raised $1.6 billion in a U.S. public offering July 26, shot up 40% in its first day of trading but has lost ground since. The big shocker was Xiaomi, China’s smartphone manufacturing powerhouse, which was valued at $50 billion—half the valuation it said it was seeking few months ago—in its July 8 IPO in Hong Kong. Financial Times’ Henny Sender warns Xiaomi’s lackluster debut has “cast a lengthy shadow” over the listing prospects of other Chinese tech companies. Meanwhile, the share price of Tencent Holdings, one of China’s two Internet giants, has fallen by about 25% from its January peak, wiping out $140 billion in value.

None of this is to say China’s tech prowess is illusory. Adam and I have argued elsewhere in Fortune that we think China has emerged alongside the U.S. as a new tech and innovation superpower. A capital winter, if it comes to China, will eventually thaw. For better or worse, China’s rise remains one of the global economy’s most important developments.

Clay Chandler


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