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Tencent backs video app to reach rural, small city populations, exec says

Tencent Investment is backing Beijing-based video sharing app Kuaishou in large part because of its popularity in smaller cities and rural areas, managing partner at the Tencent Holdings Ltd. unit Jeffrey Li said.

Kuaishou has since 2016 consistently achieved 22% market penetration in what Li defined as fourth-tier cities in China, where more than half the population work in manufacturing and public services. The app is widely used by over 40% of those who live in the countryside, he said.

Tencent has seized opportunities to invest in companies with a large user base in lower-tier cities because it believes demand will increase in line with household incomes, Li said at the SuperReturn Asia conference in Hong Kong on Sept. 24.

"The rural area of China is developing really fast and as such, lots of brands and consumption behaviors will be adopted in lower-tier cities in the near future," Li said. "We see the success in platforms like Kuaishou, which has been clear about its focus on low-tier cities, through its simple social recognition model."

Tencent has invested between US$1 billion to US$1.5 billion in the app, according to reports. Kuaishou is reportedly considering an initial public offering in the U.S. next year and is looking to raise more than US$1 billion in its pre-IPO round at a US$25 billion valuation. The company has also attracted Chinese rival Baidu Inc., which joined a US$350 million funding round for Kuaishou in 2017, as an investor.

Tencent's investments are roughly 80% China-focused, with the remaining 20% allocated to global markets, particularly in South Asia and Southeast Asia, according to Li.