China leads with eight of top ten largest VC deals in Asia in Q1’24, KPMG analysis finds

China continued to show interest in advancing AI and machine learning innovation; cleantech and alternative energy also attract strong funding in China, where three cleantech were among the largest deals in Asia during the quarter, according to KPMG analysis.

In Q1'24, VC-backed companies in the Asia region raised USD18.9 billion across 2,305 deals, according to the latest KPMG's Venture Pulse Q1 2024 report. Top three largest VC deals in Asia came from China, including a USD 1.1 billion deal by EV company IM Motors, a USD1 billion deal by AI-focused YueZhi AnMian, and a USD 940 million deal by Yuanxin Satellite.

AI and new energy continued to be the most attractive sectors for investment in China, including subsectors like new materials manufacturing to support new energy activities. China accounted for four of the world's new cleantech and alternative energy focused unicorns in Q1'24, including Sungrow NewEnergy, Guangxi CNGR New Energy, Zhizi Auto, and Qiyuan Green Power.

Zoe Shi, Partner, KPMG China, says: "In China, we have witnessed significant development in the EV sector, especially in the passenger vehicle market. Currently, there is a growing interest on EV trucks due to China's vast industrial market and the extensive use of trucks for industrial transportation. However, further progress is required to fully expand this sector, from an energy-related aspect of development and exploring new materials to support industrial vehicles."

During Q1'24, a number of SPACs in Hong Kong are nearing their two-year deadline to announce a merger and others are close to their three-year window to complete an announced merger. Hong Kong saw SPAC deal processes taking longer than planned, largely attributable to extended approval processes needed for Chinese Mainland companies planning to merge with SPACs for public listings in Hong Kong, contributing to a more cautious pace in exit activities.

Irene Chu, Partner & Head of New Economy and Life Sciences, Hong Kong (SAR) KPMG China, says: "While the broader economy needs to pick up before IPO activity really comes back, there are some positive signs for the future. Advanced technology companies, AI companies, deeptech companies — all of those fall under the strategic industries supported by the Hong Kong with strong funding and policies. This can help bridge the financial gap for startups as they navigate the challenging funding market."

Despite the challenging start to the year, the Hong Kong government continues to support R&D to drive the commercialization of research outcomes, nurture local start-ups and talent, and boost the collaboration with sister cities in the Greater Bay Area. Strategic companies from mainland China and the US in life and health technology, AI and data science, fintech, advanced manufacturing and new energy, have committed to setting up R&D centers or regional offices in Hong Kong via the Office of Attracting Strategic Enterprises (OASES) and invest more than USD5 billion and creating over 13,000 jobs in the coming years. These companies will give a boost to the startup ecosystem.

Looking ahead to Q2 2024, VC investment in Asia is anticipated to remain stable, with the consumer market expected to recover gradually. AI and ESG-related technologies, including battery technologies, the EV value chain, and semiconductors, are projected to continue drawing significant investments. In China, there is some expectation that potential government policies aimed at boosting economic confidence could enhance VC investor sentiment in the latter half of 2024, should the policies materialize in Q2'24.

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