Hard tech players now adored by more Chinese investors

Chinese investors are pivoting to new opportunities in hard technologies with venture capital investments in related areas hitting a new high, which experts believe will help replicate the success of the consumer internet in new growth.

Hard tech, which is also known as deep tech, is the term coined for areas that rely heavily on advanced scientific knowledge, long-term research and development, and continuous investment. It mainly includes the areas of optoelectronic chips, artificial intelligence, aerospace, biotechnology, information technology, new materials, new energy and smart manufacturing.

More than 1.27 trillion yuan ($198.9 billion) of funds had been raised from China's equity investment market in the first three quarters of 2021, which is a hefty 50.1 percent rise year-on-year, said a report from domestic investment research institute Zero2IPO Research.

Among all invested industries, information technology, biotech and medical care, semiconductor and electronic equipment top the list, as over 5,000 investment cases in the reporting period are in these areas.

Ni Zewang, chairman of Shenzhen Capital Group－one of the most active investors in China in 2021－said the group's investments hit a record high last year "with hard tech projects taking the majority".

As of September, the group invested in a total of 1,174 companies, 72 percent of which are hard tech firms. "The number of such companies is still increasing every year," Ni said.

Among its 198 investments last year, intelligent manufacturing, information technology and biomedicine accounted for 21.72 percent, 28.28 percent and 20.2 percent, respectively, he said.

"With the new internet economy being the main growth driver of China's primary market over the past decade, opportunities represented by the technological upgrading will lead the growth of the next 10 years," said Rachel Mei, a partner of leading Chinese investment firm Taihecap.

Mei said that among the top 100 financing events in terms of funding amount, the proportion of financing in the secondary industry continued to rise from about 10 percent five years ago to 32 percent by the end of last year.

Notably, what is behind the 32 percent are mostly hard tech projects including semiconductors, new energy and smart cars. This is in sharp contrast to five years ago when it mostly consisted of communication products, computers and consumer electronics, she added.

"It is a strong trend since last year that investment turned from the tertiary industry to the secondary industry, and from model innovation to technological innovation," Mei said.

In March, the country mapped plans to boost its national research and development spending by more than 7 percent annually and highlighted seven tech fields for major breakthroughs.

The Beijing Stock Exchange, which began trading in November, is expected to become a venue for small startups with advanced technologies. The STAR Market in Shanghai, a Nasdaq-style board also known as the Science and Technology Innovation Board, revised its rules last year to prioritize listings of hard tech companies.

"China's future economic growth will rely more on technological progress. Its efforts on green transformation will also depend on technological upgrades," said Peng Wensheng, chief economist and research head at China International Capital Corp Ltd.

"The country's scientific and technological prowess has improved significantly, but in terms of basic R&D investment, it is necessary to increase it, especially in the tech sector," Peng said.