China's Efforts in Boosting Start-up Businesses on the Rise

Entrepreneurs and business founders in China are finding life sweet, thanks to an increased level of investment through venture capital (VC) firms. The fear of being left out has given life to new ideas, as evidenced by the growth of businesses such as Kala Bike, a bike-sharing service that has inspired competitors. In fact, China is giving the United States a run for its money as the top venture capital industry in the world.

Just to put things in perspective, the bike-sharing business attracted so much attention (and investment) that market leaders Ofo and Mobike attained billion-dollar valuations in a matter of months. By the end of 2017, more than ten million shared bikes will have hit Chinese streets. In a country where successful business ideas are replicated almost instantaneously, at least 20 bike-sharing companies are competing for the market, each with its unique appeal to clients.

And it's not just bicycles that triggered an investment craze. The electric car business attracted more than 200 companies, while more than 2,000 mobile apps were created to deliver health advice, with a handful valued at more than $1 billion. A similar rush for beauty apps saw the rise of Meitu, which was estimated in late 2016 to be worth more than $4 billion.

In 2016, VC-backed investments reached a record US$31 billion, with many venture capital firms seeking to get a presence in the increasing number of businesses. This figure came from more than 300 investment rounds and represented a significant rise from the US$26 billion invested through 513 rounds the previous year. Sectors of interest for many investors included big data, artificial intelligence, robotics, fintech, and health care start-ups. Beijing venture capitalists invested more than $18 billion.

According to Silicon Valley Bank, venture capital fundraising has increased tremendously in the recent past compared to a decade ago. Back then, a quarter of all venture capital came from domestic sources. Local funding now accounts for more than 70 percent, attributed in part to China's shift of focus from manufacturing and extractive sectors. This development has opened doors for investors, both locally and abroad, in turn creating wealthy entrepreneurs. To investors such as Henner Diekmann, a partner at Diekmann Associates – which specialises in international trade and foreign direct investment in Southern Africa – the situation in China is an appealing and potentially rewarding one.

The Chinese government has contributed to venture capital growth by creating substantial funds that were estimated to be more than $300 billion in 2016. This abundance of financial resources has been boosted by a favourable business environment that is built on speed. In 2016 alone, 1,900 kilometres of high-speed rail came into service. Internet uptake, which was slow at the beginning, has made China an online shopper’s destination, with more online local spending than the US. Cash is being speedily replaced, and the willingness to embrace the digital economy has opened up work and business opportunities for millions of people.

China's rise in the venture capital industry is helped by a booming middle class that has the spending power to invest in local innovation, something that helps businesses scale faster. Additionally, Chinese companies adopt a different strategy to marketing and advertising. Rather than invest heavily in these aspects, businesses have tapped into cultural differences to create a give-and-take nature of customer relationships. Venture capital firms see themselves as mediators between the government and entrepreneurs who remove barriers to progress.

It's not just locally where venture capital investment is booming. Outbound investment is expected to remain stable, according to KPMG, with many investors seeking to acquire solutions that can be integrated into the Chinese market.