2021.03.24 Tao Tao Views:
The priorities of Chinese overseas investment move to high-end manufacturing, finance and the real estates. On one hand, some private players have become more prominent than the state-owned ones in overseas investment.
Tao Tao: Five Dimensions on Global M&A, Features and Potential
Chinese buyers are caught in the global M&A mania. After the management system of negative list for the foreign investment from QFII (Qualified Foreign Institutional Investor) was initiated, the drivers of Chinese enterprises’ overseas investment have shifted from resources and policies to corporation strategies and demands. The priorities of Chinese overseas investment move to high-end manufacturing, finance and the real estates. On one hand, some private players have become more prominent than the state-owned ones in overseas investment. On the other hand, the financial capitals have promoted more financial investment and acquisitions. In the middle and later period of interest rates liberalization, the expansion of direct financing will cause a surge in global M&As and facilitate industrial upgrades. The M&As worldwide of Chinese enterprises just kick off as domestic interest rates liberalization is on its way. It will be the boomlet of Chinese exchange market in 2015.
Here are the five dimensions on evaluating M&A success.
First, drivers for M&A. On one hand, M&As are prompted by short-term trading opportunities. On the other hand, M&As are driven by strategies. They are based on corporate strategies, along with specific logics and methodology. M&As are achieved through meticulous and systematic investigation and multiplied negotiations with many underlying companies. Definitely the latter one is more objective.
Second, valuation. Valuation involves the comprehensive investigation on company value and the price of the targeted M&A. The investigation checks on the all-about businesses of the company and its core value on the acquisition portfolios. It includes an estimation on potential synergy, in order to make a reasonable decision at the right time.
Third, pricing and relevant protections. The buyers should set store by the core assets and the risk pool on the uncertainties during and after M&A. The buyers should confirm that no violations committed by the selling parties. All clauses for protection should be in place to ensure mature and safe M&As.
Fourth, means of financing. Many Chinese enterprises prefer cash payment, leverage financing and bank loans to make M&As work. Those enterprises which utilize multiple means of financing, including share capital, leverages, PEs, industrial alliances, deleveraging through IPO, outshined in the market. Lenovo’s acquisition of IBM’s PC division and Shuanghui’s (or WH Group) Smithfield acquisition manifested this point.
Fifth, business integration after acquisitions. Many professional skills are needed after acquisitions for integrating businesses, overcoming differences between the corporate cultures of local companies and foreign companies, managing the risks of hedge currency and interest rate swings, and adding value to the companies.
Most SMEs and listed companies in China are incompetent in overseas mergers and acquisitions. Luckily, the local PEs have grown and can make great contributions to global M&As.
Above: The conclusion of global M&A strategies and standards from Tao Tao, one of the CoStone Capital co-founders. He is an experienced investor and directed many overseas mergers and acquisitions. Please refer to the link below to see the article in full: http://stonevc.com/news_view.aspx?TypeId=5&Id=504&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