Chinese Capital

 

The biggest reason why Chinese capital flows into the advanced information technology (IT) industry of Korea at a fast pace is that domestic venture and start-up companies are craving Chinese capital, unlike in the past. This is because they believe that it is the fastest way to push into the Chinese market, which has become the world’s largest consumption market. Also, Chinese companies are not neglecting this opportunity. They are aggressively investing in promising businesses.

Tencent, the largest Internet and game service provider in China, is the most active Chinese company to invest in domestic IT firms. Some say that Tencent has already invested more than 800 billion won (US$683.18 million) in Korean companies to date. It has become the major shareholder of Daum Kakao and Netmarble Games. Investing 72 billion won (US$61.49 million) in Kakao in 2012, the company currently holds a 9.35 percent share in Daum Kakao. Also, Tencent invested 539 billion won (US$452.60 million) in Netmarble Games in March last year, making it the third largest stockholder with 25 percent. Moreover, outstanding mobile companies such as Four Thirty Three Inc., Party Games, and Carbon Eyed, have received investment from Tencent.

Recently, Chinese capital is also actively flowing into new business areas, including the Internet of Things (IoT), online to offline (O2O), and fintech sectors. Innovative Play Lab (IPL), a startup is developing smart home IoT robots, has recently received US$2.2 million (2.58 billion won) in funding from China’s Vivid Ace Limited. IPL was founded by the key developers of the Kibot, a robotic playmate for kids launched by KT in the past, and is currently developing smart home robots.

Chinese capital, which makes large sums of investment, is considered a savior to the domestic IT industry.

The biggest benefit is that domestic companies can enter the Chinese market with relative ease by making use of the networks of Chinese investors.

But Chinese firms do not blindly invest money. Companies that target only the domestic market of Korea are excluded from the investments. We need to look at the fact that Chinese investment is focusing only on promising business models, which have the potential to succeed in the Chinese and other overseas markets.

Despite such a positive side, however, there are lingering concerns over the subordination to Chinese capital and technology leakage. For instance, many gaming companies, which were invested by Chinese firms, failed to receive profits after signing contracts in order to make inroads into the Chinese market.

Korean companies should not agree to replicate these systems and reveal their development source when being invested by Chinese capital.

Also, they need to clarify contract relations and terms. In particular, startups should make contracts through legal experts in order to prevent possible damages and disadvantages.

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