Aurelia Butler

BEIJING/HONG KONG (Reuters) -China-focused venture capital fundraising is heading for its weakest first half year in at least eight years, data from researcher Preqin showed, as a teetering economic recovery and Sino-U.S. tensions unsettle investors and startups.Concern about the impact of a weak business environment on startups’ prospects and valuations means a turnaround in fundraising may take time as venture funds take longer to evaluate potential deals, investors and advisers said.”The current market presents bifurcated fundraising paths: U.S. dollar funds continue to face a challenging environment with their much more risk-averse investors while RMB (yuan) funds are increasingly relying on state-owned or government-backed investors,” said Weiheng Chen, senior partner and head of Greater China practice at law firm Wilson Sonsini. “Geopolitical de-risking overhang and economic uncertainties have also been impacting the deal making,” he said.The drop reflects a turn in fortune for startups in China after years of rapid growth fuelled by ample funding. U.S. security concerns and tit-for-tat trade restrictions have left dollar investors on the sidelines while domestic yuan funding diminished amid China’s post-COVID-19 economic woes.U.S. dollar-denominated fundraising focused on China has reached $610 million so far this year, while yuan-denominated funding totals $1.65 billion, Preqin data showed.That compared with $4.11 billion and $4.34 billion equivalent in yuan over January-June last year, and was a far cry from their respective peaks of about $5.52 billion in dollar funds raised in the first half of 2018 and $48.22 billion in yuan funds raised in the same period in 2017.Venture deals by value, at $27.2 billion as of May 30, dropped to the lowest since 2020, when the onset of the coronavirus pandemic derailed business activity.Only two unicorns – or startups with valuations of $1 billion or more – have been minted in the world’s second-largest economy so far this year, CB Insights data showed.Consumer sector startups face a prolonged fundraising cycle, said Ji Xing, managing director at financial advisor Lighthouse Capital.Chip designers could be less attractive to investors, too, due to weaker demand for downstream products, Ji said.Declining valuations of publicly listed firms and lukewarm investor appetite for initial public offerings have also made it difficult for startups to seek funds, dealmakers said.”Companies have not been able to achieve desirable valuations in their offshore listings, which have factored into startups’ early stage capital raises as investors assess their exit prospects,” said Ming Jin, managing partner at boutique investment bank Cygnus Equity.    However, a nascent artificial intelligence-generated content (AIGC) sector could spawn meaningful deal activity in the second half of this year, especially for U.S. dollar-denominated venture funds, investors and advisers said.    “Dollar investors tend to focus more on the disruptive opportunities brought by the underlying infrastructure evolvement and are willing to pay more premiums for such opportunities,” said Lighthouse’s Ji.Wayne Shiong, partner at venture firm China Growth Capital, said he expected a pick-up in venture deals this year mainly driven by top-league, cash-ample funds keen to deploy dry powder that they have been sitting on throughout the pandemic. More

(Reuters) -Investors were awaiting a critical vote in the U.S. House of Representatives over the $31.4 trillion debt ceiling late on Wednesday, which could further ease concerns of a destabilizing default that have hung over markets for most of 2023.Any stock market rally on passage of the deal would likely be short-lived, with the S&P 500 already near its highest levels since August 2022, said Alan B. Lancz & Associates Inc., an investment advisory firm.”I wouldn’t be surprised if there was a reflex rally if things go through smoothly,” he said. “But that would be short term in duration, just because we’re at the higher end of our range already.”Others believed a resolution would give markets a boost.If the deal passes, “it would take this issue off the table for the next couple of years and could be a tailwind for markets in June,” wrote Brad McMillan, chief investment officer for Commonwealth Financial Network, in a Wednesday note. The S&P 500 closed down 0.6% on Wednesday in a decline some analysts pinned partly on remaining uncertainty over the vote. The index is up nearly 8.9% year-to-date. Debt ceiling concerns periodically weighed on stock markets over the last week, although most investors expected an 11th-hour agreement. Worries have been more apparent in the Treasury market, where some investors had for weeks avoided maturities coinciding with a possible default.The bipartisan deal on raising the debt limit – announced by the White House and House Republicans over the weekend needs support from both Speaker Kevin McCarthy’s Republicans and President Joe Biden’s Democrats to pass, as members of both parties object to significant parts of the bill.Investors have viewed the possibility of a U.S. default as an unlikely but potentially catastrophic event for global markets. House passage would send the bill to the Senate, where debate could stretch to the weekend, just before the June 5 date when the government could start to run out of money.Quincy Krosby, chief global strategist at LPL Financial (NASDAQ:LPLA), expects the bill to go to a vote only if lawmakers believe they have enough support to pass it.“I think both sides are going to make sure that they can count on the vote; otherwise they’ll just hold it back until they can reach the number,” she said. “Investors do think it’s going to pass. But until it’s signed, sealed and delivered, there is always the element of what if.”McCarthy predicted that the vote, expected around 8:30 p.m. (0030 GMT), would succeed, telling reporters, “It’s going to become law.” More

The writer is chief economist for the Asia-Pacific at Natixis and senior research fellow at the Bruegel InstituteThe sudden and immediate reopening of the Chinese economy after three years of zero-Covid policies on December 8 last year was accompanied by a rapid positive turn in foreign investors’ sentiment, leading to a surge in portfolio flows, especially equities. This shift was based on the experience of other economies’ pent-up post-pandemic demand. Yet China seems to be following a different pattern. While China’s services demand has been resilient, the sales of consumer durables have been disappointing, largely dragged down by cars. Fixed-asset investment is an important contributor to growth, but it grew only 4.7 per cent in April 2023, which is lower than the 2022 average. This is not only true of shrinking real estate investment because manufacturing investment is also growing more slowly than last year, when China had a countrywide lockdown. China’s contracting purchasing managers’ index data for May also confirms the negative sentiment on manufacturing, which should not be surprising given that industrial profits have plummeted in 2023, with close to 20 per cent negative growth in April. Although the poor performance of the manufacturing sector and its divergence versus services is a global problem, China’s case is particularly important because it is the world’s largest exporter. Its global manufacturing export share is more than 20 per cent.One could be tempted to argue that the reason for the poor development in China’s manufacturing capacity is flagging external demand, especially from the US and Europe. However, the trade data offers a very different picture. China’s exports grew 8.5 per cent in April, even with a rapid deceleration of the US and European economies, while its imports plummeted by almost 8 per cent. The reopening of China’s economy was widely expected to unleash the excess savings that had accumulated in bank accounts during the pandemic. This has not transpired.

Against such a backdrop, what was considered an underwhelming growth target of 5 per cent for 2023 when announced at the Communist party’s main gathering in March, is now perceived as increasingly challenging. In fact, the People’s Bank of China has been pushing banks to lower their deposit rates in order to entice consumers to spend, though it has barely cut either its reserve requirement ratio or its official rate. No big announcement to support the economy has been made on the fiscal side either. The most likely reason for such caution is the rapidly increasing public debt, which has hit 97 per cent of gross domestic product — and still excludes state-owned enterprises’ debt because of data constraints.The widened US-China yield differentials and worsening growth prospects, coupled with a depreciating yuan, are putting investors off a market that was expected to be this year’s darling. In fact, net portfolio flows turned highly negative in April, especially for equities, according to the Institute of International Finance. This contrasts with the idea that the easing of regulatory constraints on property and large tech companies would push the stock market up after the harsh government crackdown on both sectors since 2020. Instead, the stock markets of China and Hong Kong are flunking, as a result of negative market sentiment. Down the road, the question is whether peaking rates in the US, while the American economy heads towards a recession, will be enough to reignite foreign investors’ interest in Chinese capital markets. The reality is that, beyond cyclical reasons, a whole new set of risks are emerging from America’s push for technological containment and the threat of western sanctions on China, either because of its support for Russia or what might unfold in Taiwan. In addition, China’s newly amended law against foreign espionage exemplifies its increasing wariness when it comes to foreign investors.China’s hesitant recovery, its push for lower interest rates and its poor corporate profits are all deterring foreign investors. The gloomy outlook in terms of portfolio inflows is surely another important reason for it to guard its large trade surplus, even while the US and European economies head towards recession. This also means China will continue to push exports while exerting restraint on imports to protect its foreign reserves from what are, by now, pretty unavoidable portfolio outflows. More

WASHINGTON (Reuters) – A bill to suspend the U.S. government’s $31.4 trillion debt ceiling and avert a disastrous default cleared a key procedural hurdle in the House of Representatives on Wednesday, setting the stage for an vote on the bipartisan debt deal itself.Republicans control the House by a narrow 222-213 majority. But the deal will need support from both Speaker Kevin McCarthy’s Republicans and President Joe Biden’s Democrats to pass, as members of both parties object to significant parts of the legislation.The procedural vote, which allows for the start of debate and then a vote on the bill itself, passed by a vote of 241-187, with 52 Democrats needed to overcome the opposition of 29 Republicans.McCarthy predicted that the next vote, expected around 8:30 p.m. (0030 GMT), would succeed, telling reporters: “It’s going to become law.”The legislation would suspend the U.S. debt ceiling through Jan. 1, 2025, meaning that there would not be a limit until that date, allowing Biden and lawmakers to set aside the politically risky issue until after the November 2024 presidential election.It would also cap some government spending over the next two years, speed up the permitting process for some energy projects, claw back unused COVID-19 funds, and expand work requirements for food aid programs to additional recipients.Biden expects to have the legislation on his desk by a June 5 deadline, when the federal government could run out of money to pay its bills, the White House said. A successful House vote would send the bill first to the Senate, where there could be a danger of delay unless Senate Majority Leader Chuck Schumer and Republican leader Mitch McConnell agree to fast-track the legislation.Republicans want Schumer to allow amendment votes in exchange for quick action. But Schumer appeared to rule out amendments on Wednesday, telling reporters: “We cannot send anything back to the House, plain and simple. We must avoid default.” The Treasury Department has warned that it will not be able to cover all the government’s obligations by Monday if Congress does not raise the limit.During Tuesday’s debate in the House Rules Committee, hardline Republican Representative Chip Roy complained that the greater budget savings many conservatives had hoped for had not been achieved.”How on Earth is this going to be beneficial?” Roy asked.Late on Tuesday, the non-partisan Congressional Budget Office said the legislation would result in $1.5 trillion in savings over a decade.Senate debate and voting could stretch into the weekend, especially if any one of the 100 senators tries to slow passage.SENATORS FIRM UP POSITIONSHardline Republican Senator Rand Paul, long known to delay Senate votes, has said he would not hold up passage if allowed to offer an amendment for a floor vote.Senator Bernie Sanders, a progressive independent who caucuses with the Democrats, said that he would vote against the bill due inclusion of an energy pipeline and extra work requirements. “I cannot, in good conscience, vote for the debt ceiling deal,” Sanders said on Twitter. White House Budget Director Shalanda Young, who was one of Biden’s lead negotiators, urged Congress to pass the bill.”I want to be clear: This agreement represents a compromise, which means no one gets everything that they want and hard choices had to be made,” Young told a news conference.In a win for Republicans, the bill would shift some funding away from the Internal Revenue Service, although the White House says that should not undercut tax enforcement.Biden can point to gains as well. The deal leaves Biden’s signature infrastructure and green-energy laws largely intact, and the spending cuts and work requirements are far less than Republicans had sought. Republicans have argued that steep spending cuts are necessary to curb the growth of the national debt, which at $31.4 trillion is roughly equal to the annual output of the economy.Interest payments on that debt are projected to eat up a growing share of the budget as an aging population pushes up health and retirement costs, according to government forecasts. The deal would not do anything to rein in those fast-growing programs. Most of the savings would come by capping spending on domestic programs like housing, education, scientific research and other forms of “discretionary” spending. Military spending would be allowed to increase over the next two years.The debt-ceiling standoff prompted ratings agencies to warn that they might downgrade U.S. debt, which underpins the global financial system.The last time the U.S. came this close to default was in 2011, a time of similar partisan divide in Washington, with a Democratic president and Senate majority and a Republican-majority House. (This story has been refiled to change ‘plan’ to ‘plain’ in paragraph 8) More