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Zhang Wei: What We Invest In is the Entrepreneurs

2018.06.04 Noah Private Wealth Management Views:


Zhang Wei emphasized: when we invest in a company, what we invest in is its entrepreneurs.

Zhang Wei, Chairman of CoStone Capital


Zhang Wei, born in the late 1960s, stepped into the field of PE at the beginning of the 21st century and later founded CoStone Capital, one of the earliest venture capital firms in China. After 17-years’ development, CoStone has grown into a company with a total asset valuation of over 50 billion RMB. It has established over 60 funds and invested in more than 100 companies in total, among which 49 (44.5%) of them managed to enter into circulation or exit, and 28 (24.5%) of them succeeded in being listed through IPO or RTO.

In Shenzhen where PE flourishes, CoStone Capital occupies a leading position in this field in terms of either the exit ratio or the proportion of invested companies to be listed. That is why Zhang Wei and CoStone Capital are favored by many important VC prizes every year. More importantly, Zhang Wei has been listed in the Forbes list of China Best Venture Capitalists for three consecutive years.

His success relies on his philosophical thinking of three inherent problems: what does investment mean? Why we make such an investment decision? How to invest?


Zhang Wei emphasized: when we invest in a company, what we invest in is its entrepreneurs.

Zhang Wei attached great importance to the entrepreneurships of the invested companies. He has been under huge influence of the master of management science, Peter Drucker’s thoughts. Zhang Wei explained: “From the perspective of investment, the standards for measuring a company include not only its industrial structure and competition pattern, but also its business organization, corporate governance, etc. The long-term development of a company is based on how the top of the organization deals with the managerial problems.”

In Zhang Wei’s opinion, what the financial data reflect is superficial. When we try to analyze a company, we should realize that each company is an organization established in human society and an organic entity constituted by living people. It is necessary to comprehend it from this perspective. To shed light on this theory, Zhang Wei introduced the cases of Sunward Equipment Co., Ltd. (002097.SZ) and Shandong Liuhe Group (000876.SZ).

In 2004, the government's macro-control policy exerted quite a negative influence on the construction machinery industry. As a result, no one dared to invest in Sunward Equipment, even though it, with a four-times P/E ratio, was one of the top three companies in the machinery industry of Changsha City, the other two of which were Sany Heavy Industry Co., Ltd. (600031.SH) and Zoomlion (000157.SZ). But Zhang Wei and his team accessed the feasibility of the investment:

  • At that time, Macro-control policy would be put forward every few years. Although it was impossible to foresee when this round of macro-control would come to an end, the company had relatively good fundamentals;

  • Professor He Qinghua, the founder of Sunward Equipment, was the Director of Institute of Intelligent Machine of Central South University. He had admirable entrepreneurships and passions for the industry. Besides, Sunward’s “hydraulic static pile driver project” had won the second award of National Prize for Progress in Science and Technology.

Therefore, although many PE firms refused to make an investment, CoStone Capital resolved to invest in Sunward. In 2005 when the Shenzhen Stock Exchange launched the Small and Medium Enterprise Board (SMEs Board), Sunward seized the opportunity and went public on SMEs Board in 2006. Until 2007 when the ban was lifted during the bull market, investment in Sunward awarded CoStone 120 times in return.

Not only did the aforesaid investment portfolio help Zhang Wei and his team complete the precious primitive accumulation, but it also verified his investment philosophy: characteristics of the entrepreneurs is an important factor in investment decision-making. That was further proved to be true in the Shandong Liuhe Group portfolio.

At a time when the global breeding industry was not profitable, a local feed company in Shandong Province attracted Zhang Wei's attention, since that company, founded by a professor from an agricultural university, showed its unique characteristics:

1.  At that time when few farmers understood how to breed chickens and pigs, Liuhe Group put forward the advanced concept of service marketing.

2.  The management team was fully aware of the fact that the company was a community with shared interests. As early as 2003, all the middle-level managers held shares of the company, and all the managers had acquired their EMBA degrees.

Before the investment, Liuhe Group's revenue only totaled 1.4 billion RMB, and the net profit was less than 30 million RMB. After the investment, CoStone Capital provided it guidance in planning the company's restructuring and going public, as well as some management consulting services. By 2014, the revenue of New Hope Liuhe Co., Ltd. (the new name of Liuhe Group after restructuring) reached 70.012 billion RMB, with a net profit of 2.019 billion RMB, making it one of the largest agricultural and animal husbandry enterprises in China.

Zhang Wei believes that basically when we make an investment, we do not need to care about the macroeconomy too much because it is unintelligible. Even if we understand it, it is of little use. Just as in daily life, people seldom decide what they are going to do based on the day-to-day weather forecast. There is hardly any direct link between the economic growth index and the actual business operation.

What we finally invest in is a living company with a team of outstanding entrepreneurs, which has little to do with those cold macro-economic data. For a company, only management can bring about real long-term and effective improvement in fundamentals, rather than the success of a short-term business operation and a breakthrough product.



This is part of the exclusive interview on Zhang Wei by Excellent Investors, a Chinese talk show where outstanding domestic investors will be invited to share their opinions and thoughts. For the full transcript, please refer to


Here is the interview video:



Rewritten by: Xu Xinru, Edited by: Du Zhixin, Li Yunzhen

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


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