Emerging Industries (Bi-Monthly Newsletter, Issue 8)

Date: Sep 2015
Expertise in Equity-based Crowd Funding for Emerging Industries Highly Sought After
Since AngelList was established in 2010, equity-based crowd funding platforms have significantly strengthened ties between investors and start-ups, and have raised USD 3.8bn in funds across the globe by the end of 2014. This however has been overshadowed by the exponential growth of P2P online lending; by the end of 2014, RMB 382.9bn was raised through P2P online lending, up from just RMB 24.3bn at the end of 2012. Over the same period, the number of P2P lending platforms grew from 200 to 1,572. By contrast, crow funding platforms experienced tepid growth both in the number of platforms and in turnover.
According to Luo Mingxiong, President of the Internet Finance Research Institute of Shanghai Jiaotong University, the growth of crowd funding platforms have been impeded due to fewer quality projects; difficulties in figuring out a valuation and pricing methodology; difficulties in building trust between investors and start-ups; and a slow rate of return on investment.
In order to address the above concerns and ease restrictions on corporate funding as the Chinese economy slows down, the Chinese government has shown strong support for crowd funding platforms; the State Council recently called for increased entrepreneurship and innovation among the general public in its Crowd Entrepreneurship and Innovation Proposal, while the Chinese Central Bank released its Guidance to Promote Sustainable Growth in Internet Finance.
Meanwhile China’s e-commerce giants (Jingdong, Alibaba, Ping An and Jingbei) have echoed government policies and rushed into the equity-based crowd funding sector in the first half of 2015. These companies have raised the influence and visibility of the crowd-funding industry, and it is expected that expertise in this sector will be highly sought after in the future.
Lack of Technical Knowhow in Integrated Circuits a Challenge for China
China has long been a giant in the integrated circuits (IC) market. As the world’s largest consumer of ICs, China currently consumes more than half the global supply of ICs; in 2014, China’s IC market was worth RMB 1.039 trillion, representing more than half of the world’s semi-conductor market capacity. Yet despite this huge market, Chinese enterprises still lag far behind their foreign counterparts, with most of them stuck at the lower end of the IC industrial chain while foreign companies benefit from cutting edge technologies, an imbalance caused by China’s heavy reliance upon IC imports.
According to industry experts, China should encourage M&A activity between Chinese companies and their foreign counterparts. This would simultaneously address China’s late start in the IC industry, and alleviate the competitive pressure placed on Chinese enterprises by large foreign companies operating in China’s IC industry. China should also make more of an effort to establish and foster an elite pool of experts and top talent who can lay the foundation for China’s IC industry to grow. However, even with strong government support, it will still take a long time for Chinese IC companies to close the technological gap between them and their international counterparts.
Non-ferrous Scrap Metal Import Policies to be Readjusted
Over the past decade, China has become the biggest importer of non-ferrous scrap metal in the world. In 2001, the country imported just 3 million tons of non-ferrous scrap metal, but by 2010, this figure more than doubled to 7 million tons, accounting for two thirds of China’s domestic supply of raw non-ferrous metal. However, since China adopted its 12th five-year plan in 2011, this import growth has lost momentum. Output has dropped due to sluggish economic growth and lower consumption in developed economies, while prices have risen in the wake of the 2008 financial crisis and the 2010 Eurozone debt crisis. China meanwhile has seen decreasing sales due to a diminishing demographic dividend, stringent pollution controls, and rising labor costs for scrap metal processing.
These imports however remain an important source of raw non-ferrous metal in China, which remains in the short term an irreplaceable resource needed to help reshape China’s manufacturing sector. As economies around the world begin to adjust to new economic realities, China is facing increasing pressure as its economy slows, and will adjust its scrap metal import policies accordingly to keep pace with the “new normal” and to leverage energy supplies in the international market to help curb pollution.
Internet of Things Prohibitively Expensive for Mass-Adoption in Agriculture
On 7 August 2015, the Chinese State Council published it’s Opinions on Accelerating the Transition of Agricultural Development Pattern (Opinions), the first state-level policy guidance on agricultural development patterns. Since the release of the Opinions, the Internet of Things (IoT) has begun to be applied in the agricultural sector nationwide.
However, according to Bai Weisi, Deputy Chairman of China International Association of Internet of Things Promotion, while the ultimate goal of applying the IoT to agriculture is to increase economic efficiency in farming, the technology will only be adopted on a mass scale when it becomes more affordable for China’s farmers. For the moment IoT technologies are mostly used for intensive agriculture which delivers higher added value, but it will take some time before such technologies can be adopted on a wider scale, as China currently lacks the technology to produce low-cost and reliable sensors for such use, and the cost of maintaining such electronic equipment is prohibitively expensive.
New Materials Prohibitively Expensive for use in Light-Weight Vehicles
At present, about 60% of Chinese auto makers are joint ventures with foreign manufacturers, and with regards to new material technology, there exists a considerable gap in knowhow between Chinese companies and their foreign counterparts. As automakers like BMW, Audi, and Jaguar rush to launch lighter and lighter vehicles, Luo Yifeng, President of China New Materials Technology Association, proposes that China should seek to independently develop know-how and knowledge to produce light, low-cost and safe vehicles.
Luo explained that it is very complex to make a light, safe and energy efficient smart car, which apart from the technology needed for new energy automobiles, requires load-bearing components, non-load-bearing parts, as well as heat-resistant, thermal oxidation-resistant and biodegradable parts. Despite the significant advances made in the new materials sector thus far, the Chinese auto industry still has relatively high manufacturing costs, and it will be some time before the large scale application of new materials will be possible in the auto industry.
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