The quiet ascent of Chinese high-tech start-ups

In a brightly lit corner of a showroom in Hong Kong, a 300kg black robot disappears under a stack of shelves. The rack levitates and glides towards a warehouse picker, who removes an item before the shelf is spirited away by algorithms guiding it to find the most strategic place to park based on the popularity of the goods on the shelves.

The choreographed shelving dance is orchestrated by Geek+, a Beijing-based robotics start-up that has, despite international concern over Chinese technology policies, secured foreign backers, including Intel Capital and Warburg Pincus.

Following a bruising regulatory onslaught by Beijing on its internet giants and a flurry of US sanctions against Chinese technology companies, many investors have curbed their exposure to China tech, with some declaring it uninvestable.

But in the shadow of this pervasive pessimism, bright spots exist and foreign capital is still flowing into high-tech sectors. Data from China’s ministry of commerce showed that foreign direct investment in China’s high-tech manufacturing and high-tech services sectors grew 43 per cent and 31 per cent in the first eight months of 2022 compared with the same period in 2021.

Venture capitalists and private equity groups unicorn hunting in China tech have to keep politics at the forefront of their investment decisions though. “You must pick the right sectors with policy tailwind before selecting the company. If you don’t have insight on policy trends, you’re investing in the dark,” said a private equity investor at a China-focused tech fund.

That means finding companies that align with China’s strategic goals but will not be caught on the wrong end of US sanctions. Looking to appease Beijing while not offending Washington, many China funds have narrowed in on healthcare, biopharma and high-tech niches with no military application, such as warehouse robotics.

Trying to find this sweet spot has boosted the appeal of companies such as Geek+ with technology that aligns with Beijing’s push to accelerate automation. With China’s population set to start shrinking this year, policymakers want machines to replace more human labour. In traditional warehouses, pickers can spend more than 70 per cent of their time walking between shelves.

Beijing has directed Chinese companies to replace foreign tech with domestic alternatives where possible, giving rise to an ecosystem that allows companies including Geek+ to grow. The Beijing-based start-up, 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, mimic the movements of a warehouse picker rather than transport items on a track or a conveyor belt.

According to the International Federation of Robotics, demand for AMR robots increased by 45 per cent in 2021, propelled by the pandemic revealing the need to accelerate supply-chain automation. Geek+, yet to turn a profit, sold 20,000 robots last year, making $300mn in sales and projects that it will sell 30,000 in 2022. The company also has an expanding roster of clients in the west.

This growth story has appealed to investors. In August, Geek+ raised $100mn in a fresh fundraising round, giving it a $2bn valuation. However, while the political winds in Beijing have favoured such companies, there is still deep uncertainty about when investors can cash out.

Geek+ robots are programmed to find the most efficient routes, cutting down the time between a customer ordering online to the package arriving at their door. In the past, Chinese tech start-ups were guided by a similar logic: how to identify the most efficient pathway to go public.

As one veteran Chinese tech investor said, founders once ran their companies like a “box-ticking exercise of fulfilling whatever criteria stock market exchanges had to go public”. 

But that raison d’être changed last year after ride-hailing giant Didi’s disastrous initial public offering. Days after the blockbuster $4.4bn flotation, Chinese regulators launched a probe into the company over alleged data abuses and later Didi delisted from the New York Stock Exchange. Subsequently, the golden pipeline of Chinese tech companies going public has nearly dried up.

“Getting a company to go public is still the focus for investors. But the process is fraught with policy and geopolitical risk. So much has changed over the past year,” said the private equity investor.

eleanor.olcott@ft.com