The Chinese provider of cloud-based services has found a niche by helping micro and small enterprises analyze their tax and other financial big data

Key Takeaways:

  • Baiwang has filed for a Hong Kong IPO, claiming the spot as China’s second-largest provider of financial data analytical services for micro and small enterprises
  • The company’s referral fees paid to marketing agents jumped more than six-fold from 24.5 million yuan in 2020 to 170 million yuan last year


By Li Shih Ta

Big business opportunities can come in the mountains of small invoices and other financial data at many small companies. It also helps to have some assistance from China’s tax authority, whose 2015 pivot from a paper- to a digital-based invoice and tax management system has paved the way for a new generation of service providers helping companies make sense of all their new digital data.

One provider of such services, Baiwang Co. Ltd., is presenting its own latest financial data to the Hong Kong securities regulator with its filing for a listing on the city’s stock exchange earlier this month. The filing marks Baiwang’s second listing attempt, following an earlier application that failed last June. The company also tried but failed to list on China’s domestic A-share market in 2021.

The digitization of government-issued tax and other company financial information has been a building goldmine of information since China piloted a nationwide e-invoice service platform in 2021. Baiwang entered the business of providing analytic services for such data even earlier, helping it to attract more than 1 billion yuan ($139 million) in four funding rounds from A-list investors like Alibaba and Fosun dating back to 2017.

According to its latest filing, Baiwang ranked first in processing cloud-based digital tax and financial transaction data in 2022, with 6.6% of the market. That same year it topped its rivals by successfully processing about 700 million invoice requests.

Despite its own ability to help others understand their finances, however, Baiwang’s own finances look a little shakier. The company’s revenue has grown strongly over the last three years, but its bottom line has also remained deeply in the red.

Baiwang’s revenue nearly doubled from 290 million yuan in 2020 to 530 million yuan in 2022, and grew 24% to 470 million in the first nine months of last year from 380 million yuan in the year-ago period. But it accumulated nearly 1 billion yuan of losses between 2020 and 2022, and lost another 210 million yuan in the first nine months of last year.

Baiwang attributed the latest losses to a significant increase in share-based employee incentive expenses from 7.5 million yuan in the first nine months of 2022 to 160 million yuan in the first nine months of last year. Referral fees it paid to agents to build up its digital marketing services also increased from 110 million yuan to 170 million yuan over that period. As a result, its gross margin dropped significantly from 41.4% for the first nine months of 2022 to just 29.1% for the same period in 2023.

Baiwang has two major revenue sources, one providing tax digitization solutions and the other providing data-driven intelligence solutions. The former has decreased from 42.7% of its total revenue in 2020 to 27.6% in the first nine months of last year, while the latter has increased from 21.6% to 57.2%, becoming the company’s biggest breadwinner.

New business in loan facilitation

The boom in digital invoicing and other tax data has helped service providers like Baiwang become leaders in tax data analysis. By revenue in 2022, the company ranked second in China’s transaction-related big data analytics market for micro and small enterprise financing with 5.9% of the market.

Baiwang also works with external marketing agents to promote financial products such as bank loans to its customers who might need those products. It then collects a service fee from the providers of the loan or other financial products, and pays a referral fee to the marketing agents. Working with 516 marketing agents, it sold 35.6 billion yuan worth of financial products in the first nine months of last year, up 73% compared to the same period in the prior year.

But referral fees paid to marketing agents are taking a big cut from its fast-growing loan facilitation business, eroding the company’s margins. According to the prospectus, its 170 million yuan in referral fees for the first nine months of last year equaled 49.7% of its total cost of sales for the business, up significantly from the 24.5 million yuan representing 15.6% of total cost of sales in 2020.

The rising referral fees have made Baiwang more in need of cash than ever. As of Sept. 30 last year, the company had total current assets of 900 million yuan, but total current liabilities of 2.39 billion yuan and net cash from operating activities of negative 130 million yuan in the first nine months of the year. Its cash and cash equivalents also decreased from 500 million yuan in 2021 to 210 million yuan by Sept. 30 last year, which could explain why Baiwang is in such a hurry to go public.

Big potential in data analytics

While Baiwang is the largest cloud-based digital tax-related transaction processor, its 6.6% market share attests to the fragmented and competitive nature of the market. In the face of such stiff competition, the move into loan facilitation looks like a wise strategy. In 2022, China had more than 52 million micro, small and medium-sized enterprises (MSMEs), and 110 million individual business owners. But 55% of MSMEs have trouble accessing financing, with a funding gap of up to 22 trillion yuan, according to public data.

Baiwang’s latest filing also shows that China’s transaction-related financial big data analytics market for micro and small enterprises increased from 1.3 billion yuan in 2018 to 4.5 billion yuan in 2022, representing annual growth of 35.2%, and is expected to grow to 15.3 billion yuan in 2027. That should provide fertile ground to nurture Baiwang and its peers in their fast-developing field. But first, the company needs to show it can operate profitability and continue to innovate in order to win investor favor in run-up to its IPO and beyond.

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