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In a brightly lit showroom in Hong Kong, a 300kg black robot disappears into the stacks of shelves. The rack slides into the warehouse picker and removes the item before the rack leaves, guided by an algorithm to find the most strategic parking spot based on the popularity of the items on the shelves.
The choreographed shelving dance was organized by Geek+, a Beijing-based robotics startup that has secured foreign backers, including Intel Capital and Warburg Pincus, despite concerns about China’s global technology policies.
Following Beijing’s crackdown on its internet giants and US sanctions on Chinese tech companies, many investors are curbing their exposure to Chinese technology, with some saying it’s impossible to invest.
But there are bright spots in the shadow of this pervasive pessimism, and foreign capital is still flowing into high-tech sectors. According to data from China’s Ministry of Commerce, foreign direct investment in China’s high-tech manufacturing and high-tech service sectors grew by 43 percent and 31 percent in the first eight months of 2022, respectively.
Venture capitalists and private equity groups need to keep politics at the forefront of their investment decisions despite unicorn hunting in Chinese tech. Before choosing the company, you should choose the right sectors with the policy tailwind. “If you don’t have insight into policy trends, you’re investing in the dark,” said a private investor in a China-focused technology fund.
This means finding companies that align with China’s strategic goals but don’t fall foul of US sanctions. Much of China’s money is in health care, biopharma, and high-tech areas that have no military application, such as warehouse robotics, seeking to please Beijing without offending Washington.
Trying to find this sweet spot has fueled companies like Geek+’s interest in technology that aligns with Beijing’s push to accelerate automation. This year, China’s population is set to begin to decline, and policymakers are looking for machines to replace more human labor. In traditional warehouses, pickers spend more than 70 percent of their time walking between shelves.
Beijing has instructed Chinese companies to replace foreign technologies with local alternatives whenever possible, creating an ecosystem that allows companies including Geek+ to thrive. The Beijing-based startup, along with two other Chinese robotics makers – Hai Robotics and Hikvision – currently dominates the growing market for autonomous mobile robots (AMR). These robots, powered by Intel chips, simulate the movement of a warehouse picker rather than transporting items on a track or conveyor belt.
According to the International Federation of Robotics, demand for AMR robots will increase by 45 percent by 2021, indicating the need to accelerate supply chain automation in the wake of the pandemic. Geek+, which is not yet profitable, sold 20,000 robots last year, generating $300 million in sales and projects to sell 30,000 by 2022. The company also has an expanding client list in the West.
This growth story has attracted investors. In August, Geek+ raised $100 million in a new fundraising round, giving it a $2 billion valuation. However, even if the political winds in Beijing favor such companies, there is still uncertainty about when investors will be able to cash out.
Geek+ robots are programmed to find the most efficient routes, cutting the time between a customer ordering online and getting the package to their home. In the past, Chinese tech startups were driven by the same logic: how to figure out the most efficient way to go public.
According to one veteran Chinese tech investor, founders once ran their companies as “a box-ticking exercise to meet whatever standards the stock market exchanges have to go public.”
But that raison d’être changed last year with ride-hailing giant Didi’s disastrous initial public offering. Days after Blockbuster’s $4.4 billion flotation, DD was delisted from the New York Stock Exchange after Chinese regulators launched an investigation into the firm over data abuse. Subsequently, the golden pipeline of Chinese tech companies to the public has almost dried up.
“Taking a company public is still a focus for investors, but the process is fraught with political and geopolitical risk. A lot has changed in the past year,” said the private equity investor.
eleanor.olcott@ft.com
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