2018.03.05 Li Xiaohong Views:
Li Xiaohong believed that tech companies would be the leaders in vertical industries. The early development of the giants in vertical industries benefited from the non-technological factors like innovative business models, unique resources and financial investment. The giants then had to eventually rely on technology to expand scale, increase efficiency and build up strength when the time comes.
CoStone Capital Li Xiaohong: Observations on Future Venture Investment in Hi-Tech Field
As AI was becoming more mature, Li Xiaohong believed, AI, big data and cloud computing represented the cutting-edge technologies of the third industrial revolution in history. AI and big data could bring enormous opportunities to scientific innovation and investment. “AI imitates the way how humans think. Now we are in the age of ANI (artificial narrow intelligence). AI is applied in facial recognition, speech recognition and intelligent search. By developing deep learning and Mapping Knowledge Domains, we will usher into the ASI (artificial super intelligent) era. AI will be applied on virtual personal assistance, smart robots, smart factories and automatic driving.” said Li Xiaohong.
He added, the fast-growing wealth had increased demands for quality products and services. High-end industries were moving fast to China, driving unprecedented structural upgrades in China’s economy. The core industrial chains like electronic information and automobiles were breeding enormous opportunities.
As the new generation of ICT was growing and become more mature, Li Xiaohong indicated that China, the largest manufacturer in world, was in a huge transition. Numerous opportunities were popping out in automation and information technology.
Li Xiaohong believed that tech companies would be the leaders in vertical industries. The early development of the giants in vertical industries benefited from the non-technological factors like innovative business models, unique resources and financial investment. The giants then had to eventually rely on technology to expand scale, increase efficiency and build up strength when the time comes.
Li Xiaohong, partner of CoStone, is in charge of TMT investment. He led the investment in the unicorns like SenseTime and Royole. Prior to joining CoStone Capital, Li Xiaohong has worked in HUAWEI for a decade, seeing HUAWEI grow to an ICT giant. In only a few years, Li Xiaohong succeeded in changing his role as a technician to a competent and professional investor.
Above: Excerpt of the interview with Li Xiaohong from STCN. Please refer to this link to view the interview in full: http://stonevc.com/news_view.aspx?TypeId=5&Id=677&Fid=t2:5:2
Rewritten by: Luo Xinying, Edited by: Du Zhixin, Wei Yiyi
Over the past year, the bull market returned, with technology leading the way.
As I said back in October 2024, the rally that began on September 24 was not merely a rebound, but a reversal. Since then, China's capital markets have undergone a broad revaluation, moving from undervaluation toward fair value.
The Shanghai Composite Index reached its highest level in a decade. The "Yi-Zhong-Tian" trio—Eoptolink, Zhongji Innolight and TFC Communication, three prominent Chinese optical communications stocks—saw their share prices multiply severalfold in a single year. Cambricon's market capitalization briefly exceeded RMB 600 billion. Elsewhere in the technology sector, triple-digit price-to-earnings ratios and valuations exceeding RMB 10 billion became commonplace.
Some investors were greedy; others, fearful. Still others asked me: Are technology stocks in a valuation bubble?
My answer is that what we are witnessing is the hunger and anxiety of an era, reflected in the capital markets. Once you understand this, the current fervor for technology investing is no longer difficult to explain.
Investment has nothing to do with macroeconomics, but everything to do with geopolitics.
China-US relations will shape the investment landscape for decades to come. Geopolitics has played a major role in shaping the hunger and anxiety of our times, fundamentally reshaping the way we invest.
What, then, lies at the heart of China's hunger and anxiety?
The Fourth Industrial Revolution is already underway, yet China has not fully overcome the technological shortcomings left by the Third. There is no time to lose.
This is why some people wonder: Why do Chinese computing chip companies command such high valuations when their technologies still lag so far behind NVIDIA's? Why does NVIDIA trade at just 50 times earnings, while a company hailed as "China's answer to NVIDIA" commands a multiple of 300?
To me, this gets the logic exactly backward.
It is precisely because these companies cannot catch up with NVIDIA in the near term that they command a higher strategic premium. The wider the technological gap, the greater the strategic value.
The further something lies beyond our reach, the stronger our hunger. The harder it is to catch up, the deeper our anxiety. If China were to achieve a complete breakthrough in computing chips one day, valuations might actually come down.
Where can one find China's most spectacular natural landscapes?
Much of the answer, I believe, lies in and around the Hengduan Mountains: the Meili Snow Mountains, Jade Dragon Snow Mountain, Mount Gongga, Mount Siguniang, Jiuzhaigou, and many others. Vast differences in elevation and deep fault lines have given rise to landscapes of extraordinary grandeur.
Hard-tech investing follows a similar logic.
Technological gaps, discontinuities in capabilities, and missing links in industrial systems: a leap in difficulty brings a leap in valuation, and a successful breakthrough can, in turn, bring a leap in returns.
This logic extends well beyond computing chips. It is equally evident in memory semiconductors, commercial spaceflight, and other sectors where China still faces substantial technological gaps with other countries.
It was precisely this conviction that led CoStone Capital, starting in 2016, to decisively focus its investments on three areas: hard tech, emerging industries, and life sciences and healthcare. In this context, "hard tech" refers specifically to important industries in which China faces a technological gap with the United States.
Thanks to this forward-looking strategy, CoStone Capital established an early presence across the full value chains of key sectors, including semiconductors, artificial intelligence, and robotics.
Looking ahead, the frontiers of technological progress and industrial upgrading are boundless. Nor can the gaps in hard technology be closed overnight. The twin windows of opportunity presented by technological innovation and the development of homegrown alternatives to foreign technologies have only just begun to open.
The road ahead is long, but the future holds immense promise.
As an investment firm, CoStone Capital will continue to invest where the hunger and anxiety of each era run deepest, move forward with the tensions that shape our times, and extend our reach toward the most challenging—and most important—frontiers.
Spring 2026