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 http://stonevc.com/news_view.aspx?fid=t2:5:2&id=528&isactivetarget=true&typeid=5
Edited by Li Yunzhen,Du Zhixin
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