2016.12.19 Zhang Wei Views:
If SOE’s C-level executives still hold no shares, the mechanism will not change. I am not interested in companies of this kind.
If SOE’s C-level executives still hold no shares, the mechanism will not change. I am not interested in companies of this kind.
The mixed-ownership reform should touch the incentive mechanism and optimize SOEs’ governance. Stock shares let entrepreneurs have a say. It is both protection in property rights and an economic incentive.
In CoStone’s portfolio, only under 5% are SOEs. In 2014, a central SOE reformed its ownership by selling 30% of its shares to those renowned companies and institutional investors at the price of 100 billion RMB. But the result was unpromising because of the company’s inefficient asset.
I didn’t see this change as an opportunity back then, for the reform didn’t touch the SOE’s governance system. Outside investors were scattered and had no seat on the board. The largest sponsor only held 2.8% of its shares which was impossible to earn them a say on the board to improve the company.
The situation was even worse when you noticed that even the management team had no shares. The largest problem in SOEs is the lack of a long-term incentive mechanism. That is why today’s SOE reform is less effective than the Chinese Four Banks’ introduction of overseas strategic investors. Because, at least, outside investors had seats in the Four Banks’ boards. They can help the company to improve. Without a say on the board, the management team is inactive. That’s why the central SOE’s performance was dissatisfactory even after selling their shares to the private sector.
The above is part of an interview with the Economic Observer, where Zhang Wei shared his insights and concerns over the SOE reform and his recognition of some successful reform cases.
Rewritten by Chen Cong, 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