Media Center

Qiwen Wang: Many private equity institutions in China will be phased out gradually in crisis of cold ‘winter’

2013.03.23 Costone Capital Views:


When many financial institutions with the obsession of copying the 'US pattern' to the Chinese market. Zhang focuses more on investigate the niche market between Chinese and foreign markets and investing in the Chinese economy with unique logic.


Shandong Liuhe was a famous case of Zhang in his early years. With annual sales of 70 billion yuan in 2014, this leading agriculture company used to earn only 1.4 billion yuan in 2003. It is highly controversial when Zhang invested 67 million yuan in Shandong Liuhe with a PE ratio of 4 because the agricultural industry is not profitable in history. Both total asset and net asset return ratios are relatively low with other competitors. More importantly, the problem caused by low efficiency in industrial volatility and industrial intensification is hard to overcome in China, so the Chinese agricultural firm can only specialize in one area.

In the field of poultry raising, Shandong Liuhe has found its unique, developing space and way. A decade ago, Liuhe positioned itself as a "server of farmers" to provide farmers with the whole service chain, including on-site field management, feeding tutorial, and epidemics prevention. More importantly, it unified the feeding supply chain, veterinary medicine, and even farm loans to guarantee. Shandong Liuhe achieved its business scope covering veterinary medicine, feed supply, epidemic prevention, site management, farmhouse set-up, and chicken purchase. The firm consistently adheres to its low-profit strategy and continuously decreases price as long as it earns a profit.

"China has a wide geographic area, and the economy in its developed province is even as same as in a major European country. Soufang and Focus are established on foreign business mode, which adopted the agent system belonging to a product of a highly developed commodity economy. Over time, the operational efficiency of two firms decreases as the increasing agent layer". In Zhang's opinion, the Chinese market is huge enough. There is still much space in the regional market to cultivate, of which 365 Real Estate is the representative firm dedicated to the Jiangsu market.

The above context is an excerpt of the speech by Qiwen Wang, the partner of CoStone Capital. For the original transcript, please refer to

Edited by Li Yunzhen,Du Zhixin

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


Stay up-to-date

Email Alerts
To receive newsletter from CoStone Capital, sign up below.