2016.09.08 PEdaily Views:
With CEO Zhang Wei’s unremitting efforts over the past 15 years, CoStone Capital has grown from nothing to the scale it has today, with more than 40 funds under management, a total worth of over 30 billion yuan. In the industry, CoStone Capital is known for “would rather make a focused investment than a micro one” Among over 90 enterprises that were invested by CoStone during the past 15 years, only one of them had a loss of principal.
Zhang Wei, Chairman of CoStone Capital
With CEO Zhang Wei’s unremitting efforts over the past 15 years, CoStone Capital has grown from nothing to the scale it has today, with more than 40 funds under management, a total worth of over 30 billion yuan. In the industry, CoStone Capital is known for “would rather make a focused investment than a micro one” Among over 90 enterprises that were invested by CoStone during the past 15 years, only one of them had a loss of principal.
Despite having many successful portfolios, Zhang Wei does not afraid of mentioning the only serious failure in his 15-year investment career – Xuchang Hengyuan Hair Products Co., Ltd. (hereinafter referred to as Hengyuan).
Hengyuan was an export-oriented fashion hair products company, located in the city of Xuchang in Henan Province, which is the largest hair products manufacturing base in China. In Xuchang, there were nearly a hundred companies of this kind, but only Hengyuan could keep abreast with Henan Rebecca Hair Products (600439.SH), the local industry leader in terms of operation revenue and taxation. Hengyuan tried to go public twice but failed, which in return imposed a negative influence on the company’s development. Due to series of problems triggered by overexpansion and moral problems of the actual controller, Hengyuan had been trapped in operational risks and debt crisis since the second half of 2014, then suffered huge losses in 2015. “It lost billions of yuan in a year on paper and now is undergoing bankruptcy restructuring.”
Zhang Wei made a conclusion on this failure: “At that time, it was too easy for Hengyuan to raise capital. Even when its first IPO application was rejected by China Securities Regulatory Commission, the company was still favored by many institutional investors and got too much money from PE. That led to blind expansion and Hengyuan failed to handle it well. It was a typical example that the maldigestion of significant capital inflow, rather than lack of money, will ruin a company. And this is true for many other enterprises.
In addition to the case mentioned above where Zhang Wei lost the principal, he also classified some portfolios where he only got the principal back, such as the Eagle Brand Group portfolio, as his failures.
Eagle Brand Group was situated in the town of Shiwan, Foshan City, Guangdong Province. Used to be the No. 1 in China’s ceramic industry, this company boasted an annual sales volume of over 1.1 billion RMB (the profit of which exceeded 200 million RMB) in 1998 and went public in Singapore in February 1999. In 2005 when Singapore’s capital market was sluggish, Eagle Brand Group’s valuation was merely 70% of its net asset, whereas the company had no debt but cash. From various perspectives, it was underestimated. Therefore, CoStone Capital acquired Eagle Brand Group through buyout investment.
It seemed like a perfect investment: healthy in corporate finance, the company could either exit through M&A by industry magnates (such as Marco Polo) or could return to be listed in China to achieve cross-market arbitrage. However, "the dream is ideal while the reality is cruel." Zhang Wei recalled: "After we had a holding, the complexity in actual operation is beyond our judgment. Even two years later, Eagle Brand Group still encountered difficulties in governance and management and failed the restructuring. As we were unable to continue to run the company, we sold its book assets and got the principal back, only making a meager profit of two percent per year. In the end, we even sold the company's shell."
From those failed cases, Zhang Wei and CoStone Capital realize the complexity in corporate governance and the significance of an outstanding management team. An excellent management team should have the capability to create value, which is crucial to a company and becomes the basic value of CoStone Capital.
CoStone Capital regards growth and valuation as core factors in every stage of the investment. Growth can serve as a parameter of valuation (no absolute standards). Different valuation systems and ways to cash out can impose a profound impact on investment decisions. “If an independent IPO can give us 10 times in return, then a stock-for-stock merge gives 3 times, and acquisition by major shareholders provides an only 1-time return.”
Zhang Wei has, on many public occasions, stated that: We do not invest in the macroeconomy nor a certain industry, but a specific company. A company that has its industrial competition pattern, corporate governance, and entrepreneurship. It is not just about the cold macro-economic data.
“In the future, CoStone Capital will continue to develop diversified products based on equity investment. We will grow into a medium-sized asset management company with multiple portfolios to serve investors.” As for himself, Zhang Wei would like to learn from those Silcom heroes to devote himself to social welfare in the latter half of his life.
This is part of the interview with Zhang Wei on the “2017 PEdaily’s List of Top 100 Investors in China”. For the full transcript of the original Chinese interview, please refer to https://pe.pedaily.cn/201801/425728_all.shtml
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