China's PMI review
The National Bureau of Statistics announced that China's Manufacturing Purchasing Manager’s Index (PMI) was 49.8% in September, which was 0.3% higher than the previous month. In terms of company size, the PMI of larger firms reached 50.8%, while the PMI of small- and medium-sized enterprises was 48.6% and 48.8%, rising 0.4% and 0.2% respectively.
Among the five indices that constitute the PMI of the manufacturing industry, the production index, the new order index and the supplier distribution time index are higher than the critical point, while the raw material inventory index and employee index are lower than the critical point. The production index of 52.3% and the new order index of 50.5% both indicate that the expansion of the manufacturing industry has accelerated, as those two figures reflect the supply and demand sides. The growth rate of investment in the manufacturing industry has gone up 2.6% since January 2019. However, it appears that a second negative growth rate was present in September. Stabilization of investment in the manufacturing industry is crucial.
Global smart manufacturing PE events in 2019
The chart below shows the investment activities of the smart manufacturing industry in 2019. Sub-sectors include robotics, 3D printing, sensors, drones, semiconductors, commercial space and other hardware.
It can be found that the number of financing events in Q3 reached 200 in total and 77% of the total are domestic ones. In terms of the domestic market, Chinese logistics and warehousing robotics developer unicorn Geek+ (极智嘉) secured USD 150 million in July, investors included D1 Capital Partners and GGV Capital. Early-stage firms in the robotics sector also show huge potential such as Mech-mind(梅卡曼德) and Agile Robots AG (思灵机器人) with fundraising in Q3. Except for robotics, the unmanned surface vessels maker Yunzhou-Tech (云洲智能) completed strategic financing in July and the post-financing valuation hit CNY 4.8 billion. Besides, in the frontier of commercial space, GalaxSpace (银河航天) valued at CNY 5 billion after the new round of financing in September, and this company was expanding rapidly since it was founded in 2018.
It is worth noting that overseas 3D printing companies have attracted attention, especially in the US, due to financing or advancement in their profiles. For example, Carbon is a company based in California. It is reinventing how polymer products are designed, engineered, manufactured and delivered, with the aim of moving towards a digital and sustainable future. In June, Carbon raised USD 260 million from Madrone Capital Partners and Baillie Gifford; previous investors also included BMW i Ventures, GE Venture and Sequoia Capital. In its 6 years of development since it was founded in 2013, it has raised USD 682 million in total; its current valuation has hit USD 2.4 billion. Another 3D printing unicorn, Desktop Metal, also raised USD 160 million from Koch Industries in January this year; previous investors include GE Ventures and Ford Motor Company and GV since one of its main applications is automotive and it has cooperation with BMW and Audi.
Besides, U.S.-based sensor and IoT platform Samsara secured series F round of financing, raised USD 300 million in September, to further develop its hardware, software, and cloud to bring real-time visibility, analytics, and AI to operations.
Stable economy development cannot be independent of the real economy
On September 17, 2019, President Xi Jinping pointed out that China must engage in the real economy, the manufacturing industry is an important foundation for the real economy, and we must make our manufacturing industry go up and push the real economy forward.
As trade frictions mainly affected the middle stream of the manufacturing industry, in the first eight months of 2019, the manufacturing sectors in the middle stream reached the fastest overall downward trend, if trade frictions do not ease, the impact of the CNY 300 billion tax list is expected to be gradually released by 2020.
In terms of inventory pressure, the process of enterprise de-inventorying has not been completed and is expected to be continued to the beginning of 2020 even the industrial inventory has shown a downward trend since the beginning of 2019. In addition, located at a high level, the growth rate of new capacity also declined.
Capital markets especially PE and VC are cooling down in 2019, start-ups which label themselves as 'smart manufacturing firms' will no longer attract funding inflow easily if there is no landing space. Capital is being more careful and is focusing on the technology firms with a high threshold.