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 http://stonevc.com/news_view.aspx?Fid=t2:4:2&Id=698&TypeId=4&IsActiveTarget=True
Here is the interview video: https://new.qq.com/omn/20180531/20180531A1PD1Q.html
Rewritten by: Xu Xinru, Edited by: Du Zhixin, Li Yunzhen
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