(BNamericas) China is looking to emulate Japan’s SoftBank by pumping venture capital into emerging tech firms in Latin America, BNamericas was told.
Potential Chinese investors are particularly eyeing the market segment underserved by both angel investors and major venture capital funds: companies valued in the US$5 million-US$100 million range.
Startups on their radar include those within the blockchain, payments and insurtech segments, Mauricio Benitez, director of consulting company BDO’s Chilean desk in Shanghai, told BNamericas.
In March, tech and telecom giant SoftBank said it was launching a US$5 billion dollar innovation fund aimed specifically at e-commerce, digital financial services, healthcare, mobility and insurance solutions in the region. SoftBank has already invested in Mexican digital payment startup Clip and fast-growing Colombian delivery and payments platform Rappi.
“Chinese investors are definitely looking at projects to invest in startups in Latin America,” said Benitez, who was part of a Chilean trade delegation led by President Sebastián Piñera that visited China recently.
“There’s a very large gap for VC projects. There are lots of companies valued at US$30 million, US$40 million, US$70 million. Nobody is interested, nobody is helping to give them the final push. China has realized this. SoftBank has done it and now China wants to do the same.”
Potential investors are looking for firms that have developed technology in-house, to not only help them to grow but also to transfer knowledge back to China, he added.
Chilean startups can apply, via trade promotion agency ProChile, to develop their businesses in China under Beijing’s Innoway incubator program.
Latin America has a large underbanked population and innovative digital payments systems are seen as a way to tap this market.
Long-established in China, BDO opened its Chile-China desk in 2015 to facilitate bilateral trade between the nations. Originally run by just lawyer Benitez and a Chinese-Canadian colleague, the desk is now staffed by a team of 30 and covers the wider Latin America region, with a focus on providing tax, legal and financial consulting services to investors from both countries.
About 30-40% of Chinese companies are state-owned enterprises.
WHAT OTHER SECTORS ARE CHINESE LOOKING AT?
China is an important investor in the region’s infrastructure and energy sectors – but other areas are currently blinking brightly on the radar.
“What Chinese investors are looking for are FDI projects in the area of agribusiness. They have long-term strategies and the need to feed the population is part of this,” Benitez said. “They say ‘I’m going to buy where they produce my cherries, my apples, my grapes, my avocadoes.’ Agribusiness is very important.”
One recent major deal involved Chinese firm Joyvio – part of conglomerate Legend Holdings Corporation – agreeing to buy Chilean food producer Australis Seafoods for US$880mn.
Earlier this year Brazilian lawyer José Roberto Martins told BNamericas that Chinese firms typically enter a market first via the FDI route. Companies then use the asset as a springboard to expand into greenfield projects, Martins said. “In Latin America they are not yet building that much; they are buying,” he said at the time.
Chinese FDI in LatAm has grown strongly, expanding from almost nothing in 2005 to an estimated US$110 billion or more in 2018, amid a shift away from simply pumping resources into infrastructure, governments and state firms, Brazilian economist Otaviano Canuto wrote in an article for the Americas Quarterly.
Over 80% of Chinese FDI – through greenfield investment or via M&A – has gone to Brazil, Peru and Argentina, he said.
INFRASTRUCTURE, ENERGY PROJECTS
While the major focus of China in Latin America is FDI and providing infrastructure and energy loans directly to certain governments, Chinese players are involved in PPPs in some markets, but largely as provider of engineering, procurement and construction (EPC) services.ering, procurement and construction (EPC) services.
China entered the PPP space in Chile last year. China Harbour Engineering Company won an EPC contract for an irrigation reservoir that will be known as Las Palmas. The US$173mn project – in the advanced design and engineering phase – will likely be operated and maintained by a third party.
The contract was the first of its kind awarded to a Chinese firm in Chile.
“The same thing happens in the area of energy,” said Benitez, adding that the focus is on wind, solar and hydroelectric PPP projects in the region. Other sectors on their radars are ports, airports, bridges and hospitals, which players are looking to get involved in, again, via an EPC role.
Another major area on the radar of Chinese investors is real estate. Prospective FDI players tend to look for land rather than buildings, Benitez said.
FUTURE OF CHINA-CHILE RELATIONS
Chile and China have been building bilateral ties since the 1970s and Benitez expects this trend to strengthen.
The two countries signed a free trade agreement in 2005, which has since been expanded. China is Chile’s biggest trading partner, accounting for 27% of the Latin American nation’s exports in 2017.
“I think we will see even closer collaboration,” Benitez (pictured) said. “Chile has what China needs, and vice versa. Chile needs a large market because the local market is small, and China needs what we produce in Chile.”
Regarding where Chile stands on the geopolitical stage, Benitez said the country has a neutral stance with an economy that is open to all nations.