Li Feng: The Epidemic Is a Stress Test for Entrepreneurs and Investors
Following a Caixin Global Webinar on Feb. 27, Li Feng, founding partner of FreeS Fund, answered additional questions from the audience after the webinar.
Q: Is FreeS Fund adjusting its investment strategies in terms of sector and market amid the coronavirus outbreak? Is the company walking away from offline-only retail & consumer fields and focusing more on tech-enabled businesses during this period?
A: We haven’t made any major changes to investment strategy at FreeS Fund. On the contrary, the number of new investment projects in February was higher than in both February 2018 and 2019. Some of the reasons are:
• Some invested projects showed stronger growth potential amid the epidemic, which FreeS Fund has made additional investments in. Some industries’ turning point is looming, such as video conferencing, industrial robots and industrial solutions, whether in terms of automation or intelligence. By and large, FreeS Fund will increase its investment in digitalized industries and online businesses.
• Assuming all enterprises in a specific industry are greatly affected, those who have better “fighting spirit”, resilience, determination and stronger management ability are more likely to survive and achieve after the epidemic. The philosophy of FreeS Fund is to invest in the best performing enterprise in any industry devastated by the epidemic.
Q: What are the sentiments of LPs who are investing in China? Are they holding back from putting money into the Chinese market?
A: LPs will buck the trend and be more bullish than others on China. As Covid-19 spreads globally, China is very likely to be the first country to get the disease under control. China's strength and resilience in terms of market demand, production, manufacturing, and supply chain will be more prominent. Investment in China will maintain its momentum, and China's capital market is already showing signs of recovery.
Q: Surveys show businesses are worried about sluggish demands and fewer clients, so what do you think authorities should do to boost demand other than easing monetary policies?
A: Governments are more likely to stimulate consumption and demand by adjusting value-added tax and social security for SMEs.
• The Chinese government is more likely to stimulate consumption and demand at the corporate rather than individual level. And for small enterprises, they may help on social security payments.
• The adjustment of value-added tax rates and other policies will benefit small and medium-sized enterprises, helping safeguard employment and salary growth. That will be critical to maintaining and developing consumption, as employment and income of course have the highest correlation with consumption as a whole.
Q: How will the outbreak impact Chinese consumption patterns?
A: China's consumer market will be more online-oriented both in terms of supply and demand after the epidemic.
• With consumers spending much of their days at home on the internet and enterprises needing to adapt to remote work, both supply and demand of digital services will increase.
• Enterprises will be better digitalized and even grow more automated during the epidemic and thereafter.
• Internet usage and consumer maturity will improve, businesses’ online presence will be increasingly important.
• The whole consumer market and consumption patterns in China will evolve in the degree of digitalization, and Chinese consumption patterns online may become the world's leading mode.
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