Media Center

Wei Zhang: Investment logic on betting China

2014.03.31 Costone Capital Views:


Zhejiang Conba paid 994.5 million yuan to purchase a 51 percent share of Guizhou Bate after 4 months' stock suspension. It is one of the largest domestic M&A cases in the pharmaceutical industry, and it is also the largest domestic M&A case in the venture capital industry during April.

This investment is led by CoStone Capital, which subscribed 50 million shares of Conba at 12 yuan per share, of a total 600 million yuan. Yanli Chen, the partner of CoStone Capital, said the firm is investing in Conba because CoStone bullish on the pharmaceutical industry in China, and the fundamentals and future growth space of Conba as a pharmaceutical firm meet the investment criteria of CoStone.


In terms of the investment plan, Chen stated that "pharmaceutical industry in China has strong potential room for growth. Its development also coincides with China's aging population structure, urbanization, and medical system reform. Moreover, the pharmaceutical industry is not affected by the economic recession, and its future development is promising."

CoStone Capital has a rich investment experience and profound investment layout in the medical industry. Chen shared a case of CoStone, "we invested in a pharmaceutical company just beginning to grow up a decade ago. At that time, 10 million yuan's investment created a gross profit of 300 million yuan. We own all the shares, which have reached about 500 million yuan according to the current market valuation, with a return of 50 times. If it goes public successfully, the return could hit 100 times high. "When talking about the secret of investment, Chen admitted that CoStone chooses the portfolio cautiously and has his own valuation method.


Differentiated from other financial institutions highlighting the R&D ability of medicine enterprises, Chen believes the success of enterprises relies on the R&D ability and the comprehensive ability, especially for developing a new drug with a high R&D cost. If the cost goes up, the selling price will also lift high, which means the drug needs more promotions to attract more customers. For pharmaceutical companies that only have three to five years' growth phase, the economic benefit is highly uncertain if the investment company over-pursuit the R&D skills, which finally increases the investment risk. In China, pharmaceutical enterprises producing generic drugs with good R&D ability and sales channel can also obtain a good market, so pharmaceutical enterprises are suggested to avoid pursuing being "lofty."

The interview is published on Forbes China, please refer to the original context:

Rewritten by: Siyuan, Edited by: Du Zhixin, Wei Yiyi

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


Stay up-to-date

Email Alerts
To receive newsletter from CoStone Capital, sign up below.