The Rise of Chinese Startups in Latin America
In just two years, Noticias Aguila (News Eagle) has accumulated over 20 million users and in 2017 rose to the top of Google Play’s Mexico store. The founder, Tang Xin, simply watched the success from afar with his development team based in Shenzen, China.
Xin is part of a group of emerging Chinese developers and investors who forecast that the next big technology boom will come from Latin America.
Tian Ge Interactive Holdings Ltd., a Hiangzhou-based startup, plans to build an internet finance platform in Mexico.
Ofo, the native Beijing bicycle sharing service, is scheduled to make its first appearance in Latin America, starting with Mexico. Smartphone manufacturer Transsion Holdings is expected to begin operations in Colombia while China Mobile Games & Entertainment Group is preparing to spread its mobile games across Mexico.
China has been investing in Latin America’s extractive industries and infrastructure since the early 2000s. A report by the Atlantic Council found that Chinese firms are shifting their focus more toward the service sector - everything from electricity generation and transmission to information technology, communication and transportation.
Many of Latin America’s new China-based startups are not moving into the region just to make a quick buck, but instead aim to dominate the region’s underdeveloped tech industry.
Xin, the brain behind Noticias Aguila, has set his sight on becoming the biggest internet company in Latin America. To attract local users, the company’s team back in Shenzen has developed algorithms to match publications with user preferences opposed to editor preferences.
While the motive to invest in Latin America is partly due to the fierce competition in their own country, Latin America has even a bigger motive to strengthen ties with China. Since Trump’s election, the economic relationship between the U.S.and Latin America is more ambiguous than ever - leaving Latin America scrambling to find a new major trading partner and “friend”.
According to data collected from Preqin, Chinese venture capital investment in Latin America spiked from $30 million in 2015 (pre-Trump’s election) to $1 billion in 2017 (post-Trump’s election). A report from the Atlantic Council indicates that Latin American countries have lowered their barriers to foreign investment, while China on the other hand, is racing to get its cash out the door.
“It’s risky and these companies will need to localize their products,” warns Tang Jun, the deputy director at the Institute of Latin American Studies at Zhejiang International Studies University. “There will be political environment risk, as many parts of Latin America often go through quick cycles and turbulence.”
Unlike many global investors, China seems unafraid of Latin America’s turbulent politics and economic bouts. Shortly after the 2016 U.S. elections, China “pledged to increase trade with [Latin America] by $500 billion and foreign investment to $250 billion by 2025.”
Given China’s strong background in the development of unicorns (start-up companies valued at more than a billion dollars), outlooks for their new startups seem strong.
According to CB Insights, China now holds four spots in the list of the world’s top 10 most valuable unicorns. Quartz even predicts that China’s combined valuation will surpass that of the U.S.s’ by the end of 2018 if it continues to grow at the same rate as it has for the past four years.