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General Outlook:
With the currentglobal circumstances and the previously radical quarantine measures in China,the occidental countries seem to deleverage China more and more. Bigconglomerates such as Coca-Cola are preparing Plan B of their strategy inChina, in case any unexpected changes would come through.
But is China reallylosing its charm to international investors? What is going on across thepacific ocean? And what is in store for this country in the near future? Let’stake a look!
- We start to see a new rebalance of the global supply chain – several manufacturing jobs/businesses will move to SEA/Africa or home countries. But there is a green light for discussions with foreign countries and opening up more for trade.
- Raising foreign money, especially USD to invest in China will be relatively more difficult than before the Covid period.
- When the US interest rate hike is fully digested, China will be thirsty again for USD investments or trade surplus, which will result in abundant local incentives to attract foreign investment and encourage local export.
- In general, VC in China will stride with more complications since the exit opportunities are somehow limited.
- We expect to see a big surge of domestic government investment in private capital in the future. For the moment, raising RMB from local governments is still not easy, as the latter burnt trillions of RMB in dealing with Covid.
- The turbulences in 2022 have further assured us that investment requires perseverance through these cycles. Companies need to focus on the cash flow to extend their runway and survive to grow.
- Investments should come back to what it was in the late 2000s, and early 2010s: to find companies with the capability to be break-even very quickly with minimum fundraisings.
Is China still attractive to foreign investors?
Despite the macro context surrounding China, its market potential and assets are still huge. We are deeply convinced that China will keep its position as the industrial powerhouse. China is trying to stimulate the national economy and the recovery is going to be fast but choppy.
Why?
- No one can replicate the Chinese logistics model from A to Z;
- Shanghai hub still represents 20% to 30% of the occidental export support while Japan and several others are entirely dependant on Chinese productions export;
- The efficiency in China is not replicable judging from its strong industrial position and cultural heritage;
- The confidence is still there: people are not de-investing in China;
- The middle class is massive in China, and the revenue per capita is rising enormously by 20%.
Nationally speaking, the rebound is going to be fast, but it will take a longer time to pick up on the international level due to the tailwind of logistics response and Covid preventive measures taken by other countries.
Sector focus:
- China's growing R&D investments in various industries will likely lead to the development of more innovative technologies in fields such as pharmaceuticals, semiconductors, manufacturing, and aerospace.
- Although China has many great consumer goods companies, there are few internationally renowned Chinese brands. We look forward to the emergence of more well-established brands. We think an educated connected consumer class will continue to thrive.
- Most business models in the New Consumptions sector are not lasting long due to the over-crowded playground, a lack of brand building, and the proper product development.
- Consumption platforms are constantly changing (the strongly arisen ones like Little Red Book, Tik Tok, or Taobao live streaming). Consumer brands should always keep their head up and stay close to the sales trend.
- The entertainment industry especially e-gaming will continue to see its rise as people have been longing to go out and enrich their daily lives with more activities.
- A future wave of exports is on its way, as Chinese companies gradually transform from a simple "Made In China" model to “Chinese Brands”. Companies will move beyond the OEM norm to participate in the process of design, production, and marketing to create internationally renowned brands. It takes time but will surely rise up.
- Manufacturing will still be solid.
- Package goods will see great opportunities thanks to the well-developed domestic supply chain system and last-mile delivery.
