2011.12.30 Costone Capital Views:
In retrospect of 2011, the venture capital industry in China has experienced a fruitful year. The fundraising, investment amount, and investment quantity have reached a new high, which fully demonstrate the Chinese economy's viability and the vitality of the venture capital industry.
The statistics by the end of November in 2011 shows the attractiveness of the venture capital industry:
· Domestic venture capital firms have raised more than 60 billion US dollars.
· More than 500 funds have been newly established.
· The total investment amount has exceeded 35 billion US dollars.
· The investment case has exceeded 2000.
· The number of active investment institutions has reached more than 4000.
However, the venture capital market was not peaceful in 2011. Due to the impact of the economic crisis, the US capital market was sluggish. Meanwhile, the Chinese Concept Stock suffered a comprehensive setback in the foreign capital market, which seriously affected venture capital institutions' exit. According to Zero2IPO Research, only 61 of Chinese companies went public successfully in early November, combined with $12.764 billion and less than the scale of issued IPOs and fundraising during 2011. This has a huge impact on the return of venture capital institutions, and it also brings great pressure to relatively weaker institutions.
In this context, the valuation and performance of post-IPO overseas were also disappointing. Based on our observation and judgment, there will be a trend that the delisting Chinese companies in foreign countries will choose to be listed in China again. Many outstanding Chinese firms are listed in Hong Kong, Singapore, Germany, the UK, and the United States. Among them, the capital markets in Singapore, Germany, and the UK tend to be marginalized due to the low market valuation.
In Hong Kong and the United States, many Chinese enterprises are also valued low in the foreign market because of industrial property. These Chinese enterprises listed in the secondary market are normally valued close to or lower than the primary market valuation, and partial enterprises are valued lower than a net asset. Once such enterprise delists in Hong Kong or the US market and lists in China, it will become the proper venture capital investment.
Another big issue in the venture capital industry happened on 8 Dec 2011. The general office of the National Development and Reform Commission issued a notice on promoting a private equity firm's development. The notice states five norms and requirements for domestic PE firms in five aspects: PE firm set-up, fundraising and investment field, risk management, regulatory institution, information disclosure, record management, and industry self-discipline. It proposes the standard to national PE firms to provide policy support for the VC industry's healthy development. It is also the first national rule for domestic PE firms viewed as an important milestone representing the large and disciplined Chinese VC in the future will gain a strong 'credit endorsement' to a certain extent.
Although we faced many negative factors in 2011, the Chinese capital market is still a 'paradise' for VC institutions compared to the global market. The statistics show that more than 548 firms are being listed on the worldwide scale in early November, of which 324 were Chinese companies accounting for 59 percent of the total. Of 324 Chinese firms, 263 of them went to the public in China, accounting for 81 percent, and the remaining 61 firms went to the public in foreign countries accounting for 19 percent. Based on our analysis, we predict the golden time of the capital market in China will arrive in the next 5 to 10 years, and there will be more than 300 firms going to the public in China each year. Therefore, we are full of confidence in the future development of the VC industry in China.
From the government's perspective, the financial industry is coming to the era of capital along with a series of policies being released last year. The arrival of full license in the financial market enables financial institutions specialized in some fields to enter other fields, so there is almost no difference between public placement and private placement. Since last year, the public offering fund is granted to enter the private offering fund. It is good news for asset managers because of the increasing variety of financial products will increase customer demand. Meanwhile, the financial market will enter the fully competitive market gradually. From the customer's perspective, they can invest in more diversified asset allocation varies in terms, riskiness, return, and asset investment. From the perspective of asset allocation, the increasing product range has always been a goal of venture capital firms, and CoStone is also extending to other investment fields. Last year, we began to attempt the real estate fund and fixed income fund because we believe this is a good time for future development.
From the market perspective, the brokerage and insurance have their own advantage heading into the private placement: brokerage is easier to exit, a commercial bank is easier to obtain a customer. This is an open market that everyone can participate in and play expertise to enlarge the market capacity. There is not such a big competitive pressure even if many institutions enter the private placement because the market is big enough, and they will develop more financial products and provide more products and services for customers after coming in.
The above context is an excerpt of Wei’s interview published on Securities Times. Please refer to original transcript: http://epaper.stcn.com/paper/zqsb/page/1/2011-12-30/A006/3681325191307058.pdf
Rewritten by: Siyuan, Edited by: Du Zhixin, Li Yunzhen
The year 2019 marks the fortieth anniversary of China’s Reform &Opening-Up, once again, we meet at the turning point of history. What’s the next step for the game, is there any clear guidance? The answer is affirmative.
Our country is enjoying a good momentum of development, which does not come from the Washington Consensus nor the Beijing Consensus. China’s experience has proved that both the visible hand and the invisible hand are crucial: the visible hand, stands for the government-led reform, and would yield benefits for reform and opening up; the invisible hand, stands for the Marginal Power represented by the private sector, and would improve economic efficiency and tax collection, create jobs and employment opportunities.
Provided that we want to protect and expand the benefits form reform, three simple but mandatory agreements are to be made and followed: No.1 Private ownership must be recognized, protected and treated equally with public ownership constitutionally, both ownerships are scared and inviolable;No.2 Make further clarification of the principal position of market economy, “deepen economic system reform by centering on the decisive role of the market in allocating resources”, as President Xi addressed in the third Plenary Session of the 18th CPC Central Committee;No.3 Implement the guiding principles of “comprehensively promoting law-based governance” of the fourth plenum. The rule of law is essential for economic growth, irreplaceable to protect private ownership, and necessary to encourage innovation and entrepreneurship.
Above are three rules for us to avoid falling into the Middle-income Trap. Assuming that we are breaking systematic barriers to private enterprises’ participation in market economy, and boosting innovation and entrepreneurship of our society, then we are heading towards a promoting direction. We are marching in the path of light, regardless of the ups and downs of Sino-US relationship, the drop in GDP growth rate, or the monetary policy.
These principals also apply on knowing how better to run a business: don’t be hedged by rules and regulations at the beginning, pay more attention to your survival, and you’ll learn more when you start your second business.
For many years, Huawei has been the only Chinese company on the list of the Top 50 R&D Spenders. Regardless of the economy and its income, what Huawei has been doing is investing in its future, dedicated to R&D, continuously and resolutely. This provisional work underscores Huawei’s accomplishments, making Huawei anindustry leader.
So, there are standard answers on how to run a company,which could be summarized as concentration and professional dedication, continuous investment on innovation and trying harder in R&D. Entrepreneurship is also important, every single company needs entrepreneurs to push aside all obstacles and difficulties, to implement strategies and ideas. We, as investors, are destined to look for such outstanding entrepreneurs and their companies, invest in them and partner with them.
At this key point of history, a country, a company, or asingle individual, will all need to find the right path. Four decades after the Reform and Opening-up, it’s time to learn from our experience and stop “wadding across