But China’s domestic market is still an attractive investment prospect for investors looking to ride on the wave of technological developments in the mainland.
In recent years, many Chinese start-ups have seen their valuations rise: Data from CB Insights show more than 50 Chinese companies with valuations above $1 billion. For one, Didi Chuxing, which dominates China’s ride-hailing market, is valued at $50 billion — only behind rival Uber on the global list of “unicorns.”
While some argue valuations for many tech firms are too high, GGV Capital Managing Partner Hans Tung told CNBC that it ultimately comes down to betting on “the right horse.”
“Whoever ends up (becoming) number one in the category wins big because the market’s massive,” Tung said. “So the premium you pay along the way (is) kind of being affected in a positive way by just the growth ahead.”
The key is to be able to pick one of the top two companies to bet on because, Tung explained, those firms often merge to expand their market share. Didi Chuxing was, for example, the result of a merger between two major ride-sharing companies Didi Dache and Kuaidi Dache.
“You see more mergers happening between number one (firm in a sector) and number two so that it becomes easier for someone to take over the market and make money,” Tung said.
