2019.03.28 South Reviews Tan Baoluo Views:
In the interview, Zhang Wei criticized the unwise investment on the trendy projects and reiterated that he remained bearish in projects like NEVs and bicycle sharing.
Q&A: Zhang Wei on Avoiding Investment Pitfalls behind Buzzwords
South Reviews: The NEV (New Energy Vehicle) is a big hit. Many listed companies claimed that they would flex their muscles in the new energy industry. Then Tesla was introduced to Chinese market and its electric car can even park outside Zhongnanhai. The industry believes that China urges more foreign investment into its innovative industry. What do you think?
Zhang Wei: China is making nice to foreign capitals. On April 2018, in the middle of the China-US trade war, the National Development and Reform Commission of China announced more openness in the automobile industry according to different types. China will scrap caps on foreign shares of special purpose and new energy vehicle producers in 2018 and the limits on makers of commercial and passenger vehicles will be eliminated in 2020 and 2022. Foreign investors will also be allowed to set up more than two joint ventures in China.
South Reviews: Will a full exemption of vehicles and NEVs a threat to the domestic business?
Zhang Wei: The industrial chain of NEVs contains upstream, midstream and downstream. The upstream refers to smart driving, “three electrics” (battery, electric machine and electric control) and other parts. The downstream is the mobility plan. Yet the midstream focuses on vehicle manufacturing. Vehicle manufacturing is a heavy asset industry with a minimum investment of over $20 billion. It requires long-term and large-scale investment without returns for a decade. Even if Tesla is able to produce 100,000 cars but still gains zero profit after 16 years. The reasons lie in its high cost and high price. Therefore, it set up factories in China for making their wares and lowering down the costs and the price.
In terms of vehicle manufacturing, the traditional makers have unparalleled advantages.
First, prestigious brands. The consumers value more the security of a car made by high-end and reliable technologies of century-old makers than any other thing. For instance, Volkswagen paid $15 billion for settling its emission scandal in 2015, but it didn’t harm its sales at all.
Second, advanced technologies. Traditional automobile makers are still strong in NEVs manufacturing and smart driving. In 2017, HUAWEI became the one and only Chinese enterprise on the list of the Top 50 R&D Spenders. Thirteen out of 50 enterprises on that list were automobile makers. Most of their spending went straight to the NEVs.
In recent years, more than 100 NEV makers emerged in China. The top 10 makers attracted more than $50 billion investment. However, the funds are nothing compared to the century-old makers. Not all those funds have been used for R&D.
South Reviews: Then where are the opportunities in terms of investing in NEVs?
Zhang Wei: The opportunities emerged in the upstream and downstream of the NEV industrial chains. Vehicle manufacturing is a fixed heavy-asset industry, but its upstream and downstream are still growing.
In fact, when the midstream is fixed, the industry soon expects a cull. Traditional makers will make the industrial chain more efficient through reforms. We should pay more attention to the quality supplier rising from the screenings, because they are the opportunities.
South Reviews: The share economy used to be the buzzword before new powers in manufacturing NEVs. However, the collapse of ofo (a Chinese shared bike company) shocked the investment communities. What do you think the failing of ofo? Is it caused by the overwhelming capitals or the innate drawbacks of this business model?
Zhang Wei: One of the merits of share economy is the immense traffic it brings in the short run through costly expansions. Yet it is difficult to turn the traffic into cash again. Apparently, you cannot install a LED display on a bicycle and display the ads.
Managers knew that it was hard to make profits out of it, but they still did it for two reasons. First, they wanted to be among the first to win a bigger slice in the racetracks like share economy. Since the share economy went viral in the world, it must have enormous potential.
Second, they invested and adopted the “wait and see” approach. Bicycle sharing was tempting at first, because it attracted dozens of millions of youngsters in a very short time. Based on this immense traffic, it still has great opportunities in store for investors as it explores more in this business model.
Bicycle sharing and power banks sharing did not really work out. The opportunities for investment in your imagination may not come true.
Above: Excerpt of the special interview with Zhang Wei from South Reviews. In the interview, Zhang Wei criticized the unwise investment on the trendy projects and reiterated that he remained bearish in projects like NEVs and bicycle sharing. Please refer to the link below to view the interview in full: http://stonevc.com/news_view.aspx?TypeId=5&Id=748&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