Telstra may be best known as Australia’s largest telecoms operator, but it has been a strategic investor in China for many years.
Back in 2014 Telstra acquired Pacnet – operator of the largest subsea cable network in Asia – which enabled Telstra to become one of the first foreign companies licensed to provide connectivity and network services in mainland China. Meanwhile, Telstra’s VC arm, Telstra Ventures –spun off in 2018 – has had a base in Shanghai since 2015.
We therefore like to think we are well placed to understand the latest innovations emerging out of China’s vast tech ecosystem.
However, one of Telstra’s first major Chinese investments (in 2008) wasn’t tech or telecoms related: it was an online platform for car sales called Autohome. This is reflective of how the China market was just a decade or so ago, with the focus mainly on consumer applications. If the portfolios of Silicon Valley funds are 80% enterprise, 20% consumer, then China at the time was the opposite.
But this has changed. Perhaps the key trend in China over the last decade has been a shift away from the consumer towards enterprise tech. And for VC firms looking at China, this has meant identifying the growth opportunities in areas such as cloud, network technology and AI.
You should never ignore the consumer – especially not in a country of almost 1.5 billion consumers – but Telstra Ventures has a philosophy on how we approach our Chinese investments: in a B2B2C environment, we like to be investing in the first B, which is transforming the business of the second B, which is then serving the end consumer.
A good example in our current portfolio is Cloopen, a communications cloud platform that provides APIs for developers to integrate functions such as messaging, video and voice into their applications. It can be seen as China’s version of Twilio, the well-known US firm that offers a similar Communications Platform-as-a-Service (CPaaS). However, in the case of Cloopen, the over-the-top players (OTTs) running on its platform are Chinese tech giants such as Tencent and Alibaba.
China’s telecoms networks are more complex than they can appear from the outside. While there are ostensibly only three major operators, the reality is that they act as individual companies in each of China’s 33 provincial-level divisions – that’s potentially 99 operators with which an OTT needs to make a commercial arrangement in order to roll-out an app nationally. Cloopen solves this problem.
Another investment of ours to watch is Qiniu Information Technology, a cloud-based storage platform. As both carriers and OTTs dramatically increase their volume and richness of multimedia data, the resilience and speed of storage becomes crucial to effectively serve their users. Today there is more than 200 billion images and one billion hours of videos stored in the Qiniu cloud on behalf of its customers.
A third example is XTransfer, a fast-growing China-based fintech that provides a cross-border B2B financial network aimed at SMEs. The firm’s technology connects SMEs with major global financial institutions, offering services such as global collections, payments, foreign exchange and treasury management alongside an AI-driven risk management system. According to the company, SMEs account for 60 per cent of China’s $4 trillion B2B cross-border trade, but they have traditionally been underserved by financial institutions.
These three companies provide a good snapshot of the tech innovation occurring in China today – and the kind of companies that are attracting investment. And further proof of the move towards deeper tech plays in areas such as the enterprise. A key driver of this trend has been China’s leadership in AI. This isn’t necessarily due to technological advancement but simply a consequence of the huge amounts of data that Chinese consumers and enterprises generate every day. There’s enough to create a competitive advantage in everything from e-commerce to understanding how driverless cars behave. The more data available, the more accurate the machine learning.
The challenging geopolitical situation in recent times has made it harder for Chinese tech firms to expand internationally – at least into Western markets. But the Chinese tech ecosystem is incredibly diverse and Chinese entrepreneurs remain realistic about scaling up their businesses, both domestically and overseas. Policy, corporate management discipline, and the legal and regulatory environments, have all improved in recent years too.
These critical changes, combined with the vast population and China’s burgeoning middle class, have helped to create a hot bed of investment potential. The local tech industry is booming, particularly in mobile internet, and it continues to present extraordinary investment opportunities, despite the challenges Covid-19 has brought with it.
So, keep an eye on some innovative enterprise tech coming out of China over the coming years.
