In January 2018 Magma Partners teamed up with Chinese coworking business, Kr Space, to launch the first China-Latin American accelerator to connect Chinese and Latin American entrepreneurs and investors.
With the recent news that Tencent invested $180M into Brazilian neobank Nubank at a $4B valuation, we’e seeing Chinese interest and investment in Latin America move beyond the common infrastructure projects backed by the Chinese government. The Chinese private sector is taking note of Latin America’s growing tech ecosystems and is capitalizing on opportunities to help the region follow a similar development path to China’s.
As the US pulls further away from Latin America, China is becoming an increasingly important partner for startups and companies across the region looking for investment and direction. As President Trump’s trade war intensifies, Chinese FDI into the US has dropped by 92% to $1.8B, while Chinese FDI to Latin America has surged to $15.3B in the first half of 2018.
This move by China is a strategic one. Latin America is ripe for investment and China and Chinese companies could be interesting partners for the region.
For one, Latin America is now a mobile-first market with over 200 million smartphone users. It is the second-fastest growing market for mobile in the world, and Latin American consumers are becoming quick adopters of new technologies and global apps.
Latin America is also a region where traditional banking falls short of serving consumer needs, leaving a significant opportunity for financial technologies, especially those that use mobile, to serve a growing population of young, tech-savvy customers. For China, where most purchases now happen through the mobile apps WeChat and AliPay, there is an opportunity to invest in the Latin American market. Latin America’s fintech market alone attracted US$186M in venture funding last year.
Throughout the first half of 2018, China appeared in the news about tech in Latin America, forming partnerships and closing deals with prominent companies across the region.
The most talked-about of these startup deals was Didi Chuxing’s acquisition for a rumored US$1B of Brazil’s ridesharing app, 99Taxis, in January 2018. Chinese investment is making its way into several other countries, including Chile, Mexico, and Argentina, as well.
Here are the ways China is supporting Latin America’s growing tech sector.
Forming partnerships in Mexico and Chile
In March 2018, Chinese payments giant Alipay (connected to e-commerce site Alibaba) entered the Mexican market through a partnership with Mexican payments provider, Openpay. The collaboration allows Alipay users to pay at any location that already accepts Openpay, which has over 17,500 points of sale across Mexico.
According to Alipay executives, the deal will streamline purchases of Mexican goods by Chinese customers, but it may also be a precursor for entering the market more directly. In the aftermath of the decision, Alipay continues to search for local partners across Latin America to continue its expansion. An acquisition would not be out of the question, as Alipay is rumored to be keeping its eye on MercadoPago, one of the only platforms that unites the region.
Mexico is also the birthplace of Noticias Aguila, the #1 news app in Mexico’s Google Play store, founded by Chinese entrepreneur Tang Xin. Noticias Aguila has over 20 million users, while its founding team is still based in Shenzen in China. Tang Xin used to work for Chinese giant Tencent before starting to invest in the Latin American market.
Further South, China is making inroads into Chile’s mobile market through China Mobile, the largest mobile provider in the world. In January 2018, China Mobile registered its brand in Chile, hinting at an expansion. China Mobile already operates in Brazil, with an office it set up last year.
Investing in key Latin American markets
Aihuishou, the leading Chinese electronics recycling company, recently closed a US$3M investment in Argentine used smartphone e-commerce shop, Trocafone, alongside Pedralbes Partners. The investment will allow Trocafone to double its team in Argentina and to evaluate expansion into Mexico, Peru, or Colombia.
With a US$1.5B valuation, Aihuishou is the market leader in used electronics sales or re-commerce, so it is highly significant that they would support their Latin American counterpart. The founders of Trocafone, Guillermo Freire and Guillermo Arslanian, were thrilled that Aihuishou was interested in the Latin American market as a potential area for significant growth.
In Chile, many people were surprised and excited to see the arrival of Chinese bike-sharing company, Mobike, in March 2018. Mobike was the first dockless bike-sharing company to arrive in Chile, but after a bit of a rocky start, consumers are starting to use the bikes more regularly. It is now relatively common to see Chileans in the neighborhoods of Providencia and Las Condes (where Mobike debuted) riding to work on a Mobike and leaving them in the parks near Santiago’s business centers. Mobike has also shown signs that it will soon launch in Mexico.
What’s next? Chinese acquisitions of LatAm startups
Didi Chuxing broke ground this year when they acquired Brazil’s 99Taxis to take on a more significant role in the Brazilian ridesharing market. However, I predict that we will see a lot more Chinese acquisitions and acqui-hires of Latin American startups over the next few years as Chinese companies fight to break into the Latin American market.
Local startups have the know-how and the client base to leverage Chinese companies’ experience and capital within the Latin American region. Many of the most prominent startups in hot industries like ridesharing, last-mile delivery, and logistics are starting to consolidate and scale; Chinese companies will likely take advantage of that growth and invest in or acquire companies that perform well.
Chinese investment and involvement in the Latin American tech sector is a growing trend, and it is one that I predict will come to define some of the development of the Latin American region over the coming decade. Through our Sino-Latin American accelerator, we are doing monthly events about the Latin American tech ecosystem in Kr Spaces and Latin American embassies in Beijing and Shanghai to promote investment in the LatAm market. We are excited to be working alongside Chinese partners and companies in Magma Fund II to continue to support and develop the Latin American tech ecosystem.