Michael Sainsbury
March 22, 2017

Li Keqiang and Aussie startups

Trade

Li Keqiang and Aussie startups

Li Keqiang: the Chinese Premier is in Australia for bilateral leadership talks with the Prime Minister Malcolm Turnbull

The Chinese number two, Premier Li Keqiang, has arrived in Australia for a five-day visit that will include the annual bilateral talks between the leaders of the two countries, an ongoing program instigated by former Prime Minister Julie Gillard and her Foreign Minister Bob Carr.

While the increasingly uncertain strategic environment in the Asia Pacific – largely due to the arrival of the Trump administration in Washington – will be an item on the agenda, the main discussion will be around trade with the man who is, at least nominally, in charge of running the Chinese economy.

With the death of the Trans-Pacific Partnership, at least as originally conceived, it would seem that the opportunity is lost. But the remaining 11 TPP partners remain committed – and this means exploring bringing China in.

This on March 22 from Trade and Investment Minister Steve Ciobo: “The very good outcome from the TPP meeting in Chile was a strongly-worded statement that made it clear that all options were on the table,” Mr Ciobo told the ABC.

“So frankly, talk of the TPP's demise is premature. So, we're going to continue to explore options. The next round of discussions will take place between officials for follow-up in APEC in Hanoi later in May,” he said.

As well, there are the ongoing talks about the Regional Comprehensive Economic Partnership, the rival China-backed pact.

So the Middle Kingdom is looming ever larger (if that’s possible) in Australia’s trade and investment sights.

In an op-ed in this morning’s The Australian Premier Li noted: “More co-operation can be explored in new areas such as industrial capacity and third-party markets, energy and mining technologies, infrastructure, agriculture and animal husbandry, which will bring more benefits to our peoples and help boost world economic growth.”

And in a media release promoting the visit, Prime Minister Malcolm Turnbull highlighted innovation and technology as two key areas for discussion and with Premier Li in Australia, it seems as good a time as any to reflect on what China can bring to the Australian technology sector.

And that, by and large, means investment.

There is little doubting China’s focus on innovation and technology. It was a surprise recent addition to key economic commitments made at the annual National People’s Congress in Beijing earlier this month.

And it was further underscored at the annual State Development Forum - a meeting of top Chinese officials, CEOs and international business leaders at Beijing’s exclusive State Guest House compound.

Like most Australian industies, the technology sector is a capital importer, so it’s no surprise that we are beginning to see the same trends in the startup sector that we have been used to seeing in mining, property and more recently agriculture.

While it is true that government efforts to channel the money from the SIV business visas into startups has not been, at least so far, an unalloyed success.

Wealthy Chinese by and large prefer property. It’s the only real asset class in a country with a still-limited investment environment, and so you go with what you know.

But around the edges – and let’s not forget with 1.3 billion people, the ‘edges’ are potentially vast – things are on the move and its private initiative rather than government diktat that has always driven the tech sector.

As China continues to pull focus on innovation and technology as a driving force for its economy, its technology investors are increasingly spreading their wings.

And the overall figures are hard to digest. China’s foreign direct investments soared 40 per cent in 2016 from a year earlier to a record US$190 billion, according to a recent study the Berlin-based Mercatur Institute for China Studies and the Rhodium Group.

And the report was careful to note that Chinese investors were particularly interested in acquiring technology and advanced manufacturing assets.

KMPG’s January Venture Pulse report showed that last year US$31 billion in Chinese venture capital came through more than 300 rounds of investment, and compares to US$26 billion though 513 rounds in 2015.

Alibaba affiliate Ant Financial last April closed a US$4.5 billion round (a world record) and the company, as InnovationAus.com has noted, is actively looking at investments in Australia. And that is the tip of the iceberg.

Only a small sliver of these funds coming into Australia would rapidly transform the environment in this country.

Already smaller but still very significant Chinese investors are also targeting Australia, with people setting their families up as a bolt hole from China.

These are wealthy students handed funds for investment by their parents, and simply interested investors seeking opportunities.

One example is Follow[the]Seed and Australian based fund that is looking to fill a gap in the investment market for startups seeking between US$0.5 million and US$2 million really struggle to find investors.

It is taking an international approach with founders from the US, Israel, Sydney and – in the shape of veteran sector investor Curt Shi – Beijing.

Over the next five years, Follow[the]Seed plans to make between 100 to 120 investments, with a combined total of US$200 million across each of its four global funds. It will focus on innovative consumer technology ventures and enterprise solutions.

"Our global reach will provide investors with unique access to diversified quality deal flow from Israel, the Silicon Valley and Australia and will make it possible for the ventures to expand to the U.S. and Asia (especially China) and benefit from each of the partner's unique expertise, wealth of experience and networks," Shi has said.

Another is Chinese-Australia Victor Jiang’s Sapien Ventures. Mr Jiang revealed on LinkedIn this week he is an invitee as a business lunch for Premier Li in Canberra on May 23

Mr Jiang has promised he will push for CHAFTA to be opened up to Aussie FinTech companies and financial services firms soonest.”

InnovationAus.com has talked to range of investors and consultants working on a raft of deals to inject Chinese funds into Australian technology ventures, but so far, they are keeping their cards close to their chests.

It’s not just China of course – although by dint of its size and the eagerness of its citizens to shift money out of the country it is the stand out example. It is reasonable to expect that Australia’s other larger Asian investors, Japan South Korea, Singapore, Thailand and Malaysia – and of course India will also be keen to play in the same space

An adjunct to this is that there is, at the moment, more Chinese money sloshing around the capitals of Southeast East Asia seeking out technology investments than in Australia. So right now a startup in, say, Singapore have a better chance of catching a Chinese investors eye.

All this begs the question of what Australia’s big technology success stories in coming years look like?

Are they, like Atlassian to use an overused but apposite example, the product of savvy investment and keen entrepreneurship by the scions of Australia’s well-heeled business elites?

Or will they be Chinese or Asian-backed companies leveraging Australia’s strong R&D capabilities but focused on the vast Asian markets and listed in Sydney - or possibly Singapore Hong Kong or the developing bourses of Thailand, Indonesia and Malaysia which can all now handle initial public offering of US$1 billion plus.

The investment by Sapien in Airtasker, for example, a company founded by two other Asian-Australians and now taking aim at the Asian market, is a prime case in point.

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