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Chinese companies lead 4th Industrial Revolution

Executive Editor of Business Report.

Executive Editor of Business Report.

Published Jul 5, 2018


CAPE TOWN - Later this month, China’s President Xi Jinping will join fellow heads of government and business leaders at the BRICS Summit in South Africa.

The Fourth Industrial Revolution, of which China is at the forefront, is one of the topics up for discussion.

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Chinese unicorns with business models similar to US tech giants are growing exponentially and raising mammoth sums of international capital at stratospheric valuations, while often incurring staggering losses.

World Economic Forum founder Klaus Schwab describes the Fourth Industrial Revolution as spawning “development of technology-enabled platforms that combine both demand and supply to disrupt existing industry structures, such as those we see within the ‘sharing’ or ‘on demand’ economy.

“These technology platforms, rendered easy to use by the smartphone, convene people, assets, and data - thus creating entirely new ways of consuming goods and services in the process.”

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On June 29 Pinduoduo (PDD), a Shanghai based e-commerce company which lost almost $80 million (R1.1billion) in 2018, but is valued at $30bn, filed to raise $1bn via an initial public offering (IPO) in the US. Tencent owns 18.5percent, and the majority of PDD purchases are conducted through its WeChat app.

PDD has become one of the fastest-growing start-ups in China by creating a sort of Facebook-Groupon mash-up where people spot deals on products such as fruit, clothes or toilet paper, and then recruit friends to buy at a discount.

It offers merchandise at up to 20percent cheaper than the market price by letting consumers buy directly from manufacturers, cutting out middlemen, advertising and acquisition costs.

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Blockbuster year

“2018 will be a blockbuster year for Chinese unicorns to come to the capital market,” Nicolas Aguzin, the chairperson and chief executive for Asia-Pacific at JPMorgan, said in an interview with the South China Morning Post in Hong Kong.

“Investors here (in Hong Kong) have strong appetite for these high-growth, new economy companies.”

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E-commerce app Meituan Dianping is seeking to raise $4bn in an IPO on the Hong Kong Stock Exchange. The company’s 2017 net loss was $2.9bn.

Meituan, of which Tencent owns more than a fifth, posted a net loss of 19bn yuan (R39.2bn) last year, hurt by ballooning marketing and research spending and after accounting for its preferred stock.

However, the internet company more than doubled revenue to 33.9bn yuan.

Assuming a $60bn valuation, its price relative to the value of its transactions would be higher than its peers, said Li Yujie, an analyst with RHB Research Institute in Hong Kong.

“Meituan might be basing this on its stronger abilities to monetise its platform, based on its various services.”

Begun as a group buying site in 2010, Meituan has expanded into areas such as ride-sharing, bikes and travel. The debutante was most recently valued at $30bn, making it the world’s fourth most valuable start-up according to CB Insights.

Xiaomi, the world’s number four smartphone maker, will commence trading in Hong Kong tomorrow in an offering that is 8.5percent oversubscribed.

Xiaomi is also unprofitable and lost more than $1bn in the first three months of this year alone.

In a “BRICS twist”, Russian blockchain fintech company Blackmoon is offering to sell digital tokens for Xiaomi’s shares on a dollar-for-dollar basis.

According the South China Morning Post, investors “could pay in ethereum, bitcoin or litecoin, while Blackmoon used the proceeds to subscribe to Xiaomi’s $4.7bn IPO in Hong Kong.”

Xiaomi has not yet accepted the offer.

The South China Morning Post reported that tycoons Sir Li Ka-shing, Alibaba’s Jack Ma, and Pony Ma of Tencent have subscribed to the Xiaomi IPO.

Other Chinese tech companies expected to list in the near future are Alibaba-owned mobile payments platform $150bn Ant Financial; the country’s $56bn ride-hailing leader Didi Chuxing; and $12bn Tencent Music.

This content is derived from Bloomberg.


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