Can Chinese VCs be a potential wild card for SEA during funding winter?

China and the Association of Southeast Asian Nations (ASEAN) have long enjoyed close economic ties. According to a Global Times report of last August, the two-way investment between the world’s second-largest economy and the ASEAN was US$340 billion as of July-end 2022.

The warm relationships reflect in the venture capital sector as well. Several Chinese tech behemoths and VCs, such as Alibaba, Ant Financial, JD.com, Tencent, and Matrix Partners, have already invested billions of dollars in Southeast Asia’s leading tech companies.

Also Read: ‘The era of easy money is over’: VCs speak of funding winter and exit landscape in Southeast Asia

As per a new report, some top-tier VCs, such as Shunwei Capital, Source Code Capital, and Vision Plus Capital, also plan to expand their regional presence. They look to invest in fast-growing startups in SEA, which has 46 unicorns, says a DealStreetAsia report, citing sources.

The Chinese VCs are turning their focus to the ASEAN because of a slowing economy back on the home turf for many reasons, including a surge in COVID-19 infections and deaths and strict lockdowns. This has led to massive protests across cities. It has made an enormous impact on China’s economic growth, prompting investors to look for other markets, including Southeast Asia.

The question is: Is China stepping up its investment activities in the region during the Funding Winter, and how vital is the role of Chinese VCs in SEA?

“China could be a potential wild card for SEA in 2023,” says Dave Ng. “During the past two years-plus, China had been pretty much inward-looking when it came to tech activities and leadership. We witnessed the changes and realignment across the Chinese tech titans, aside from other industrial sectors.”

“We are now starting to see signs of readiness for China to once again step up in their global tech activities. I believe that once they fully move past the remnants of COVID-19 sometime this year, it will be a restart of China-SEA cross-border tech flows,” remarks the Altara Ventures General Partner.

Andy Hwang, General Partner, Wavemaker, agrees. “Over the last few years, we’ve seen global investors redirecting from China to Southeast Asia. More recently, we are also observing more Chinese investors pouring money into Southeast Asia VCs and Chinese family offices set up in Singapore. Given the geopolitical environment, we expect both trends to accelerate.”

Jefrey Joe, Co-Founder and Partner at Alpha JWC Ventures, also believes China could be a potential wild card for SEA startup funding in 2023. China is the world’s second-largest economy and largest single-country donor to the ASEAN. It has also become a major player in the global startup landscape. “We have seen how significant investments have been made in some of the biggest startup companies in Southeast Asia, such as Grab, Gojek, and Traveloka,” Hwang adds.

Increasingly, China has been playing a much more active role in the region, with its investments enabling companies to scale quickly and tap into the large Chinese market to deepen growth and footprints. “Hence, China’s matured economy and willingness to invest in the region could make it a major player in SEA startup funding in 2023,” Joe observes.

Also Read: Why global investors are eyeing China’s EV landscape (Part 1)

However, Monk’s Hill Ventures’s Founding Partner Peng T. Ong doesn’t expect Chinese VCs to make a significant impact on the region’s startup scene. This is because most of the investments in Southeast Asia come from the region itself, and China is probably in the second or third spot. “There won’t be any significant rise in activity [in terms of VC investments]. Our investors are basically from our region. So China is unlikely to play a significant role here,” Ong adds.

Tin Men Capita’s Murli Ravi also subscribes to Ong’s views. “It is unclear to me how China’s reopening and other major strategic events within the country will play out in the coming months. If pushed, I would wager that Chinese businesses would focus their attention on their domestic market.”

Until several years ago, Chinese VCs bet big on India market. However, their activities in India dropped following a boarder dispute between the two countries. ASEAN countries can look to harness this opportunity but the question is: will they?.

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