Caixin Summit: Equity Chief Who Backed Lenovo’s Global Push Still Bullish on China
A Joe Biden White House could usher in healthier competition between the U.S. and China, but is unlikely to be a major departure from the Trump administration when it comes to China policy.
That’s according to Bill Ford, CEO of American growth equity firm General Atlantic, who made the comments on Nov. 12 at the Caixin Summit in Singapore.
Investors eying the Chinese market need to brace for continued Sino-U.S. tensions, while domestic regulatory risks persist, Ford said. But there are still ways the world’s two largest economies can benefit from their mutual interests.
“I’m hoping that Biden administration will recognize that our economies will stay intertwined for years to come, and our demand and supply chains are not going to disintegrate completely,” he said.
General Atlantic, a nearly $40 billion firm that has remained bullish on China through the Sino-U.S. trade war, made its first investments in China at the turn of the millennium. Chinese investments, mostly in technology, financial services and health care, make up about 15% of its portfolio.
That includes Lenovo Group Ltd., TikTok-owned ByteDance Inc., and Ant Group Co. Ltd., which made headlines this month when Chinese regulators forced it to abort what was on track to be the world’s largest IPO.
China has laid out an ambition to double its economy by 2035, and is on its way to be the only large economy posting positive growth this year, while rest of the world’s major economies continue to suffer from coronavirus fallout, Ford said.
“The shift of global growth towards Asia, particularly China, will only accelerate as a result of the pandemic,” he said, adding that more international investors are looking to diversify their portfolios beyond China to countries in Southeast Asia, like Singapore.
Nevertheless, while China is painting a bright picture to boost investor confidence, private sector regulation faces uncertainty. “The principal risk (for investors) is regulatory from both inside and outside of China,” Ford said.
The following is a transcript of Bill Ford’s conversation with Caixin Global Managing Editor Li Xin. It has been edited for clarity and length.
Caixin: General Atlantic has invested in Chinese tech companies more for more than 20 years. What drove the decision to enter China 20 years ago? And how would you compare things then and now?
Bill Ford: We started in China in roughly the year 2000 and the reason for entering the market was not just the attractive growth rates and growing scale of the economy, but the fact that the global supply and demand change for technology was migrating from the western world to Asia, particularly China.
We were very fortunate that our first investment was in Lenovo. We helped them acquire the IBM PC company and bring those two companies together, and really put Lenovo on track to being a global leader in not just technology, but the PC industry.
That experience, which exposed us to the Chinese government as a shareholder of Lenovo, as well as the growing entrepreneurial community in China, really fueled and confirmed our excitement about investing there. Now we have 25 professionals spread across offices in Beijing, Shanghai and Hong Kong.
As talent, technology, and expertise continue to flourish in China, what trends are you seeing? And given the current intense status of U.S.- China relations, do you believe the era of globalization is over?
We’re an early investor in Alibaba, which gave us a very early front row seat on what was happening in the internet economy, and we followed the whole technology sector over the last 15-plus years.
In the last several years we’ve expanded our focus to areas like consumer. Because as China has transitioned its economy away from export and investment and towards consumption and services, there’s been lots of opportunity in the consumption market. And there’s also been a growing trend from international brands succeeding in China to domestic brands and domestic businesses. We’ve been able to capitalize on that.
The other area that has become very exciting for us has been life sciences. Biotechnology is growing rapidly. You’ve seen lots of IPO activity on the STAR Market, and the Hong Kong market. One of our first investments in life sciences in China was OcuMension, which went public in Hong Kong earlier this year. As you’ve seen in other sectors, no longer is China just licensing technology from abroad. You now have therapeutic innovation taking place from terrific scientists within the area.
Can Chinese companies still scale internationally given the U.S.-China tensions? And does that still matter?
I think the answer is yes. Aside from Lenovo, I think another example of the global ambitions of the Chinese tech sector is ByteDance.
One of the things that impressed me about Ming Zhang, the founder, and why I was so eager to join the board, was that from the very beginning his aspirations were to build the first global Chinese internet company.
He wanted to be a truly global internet leader, but with Chinese heritage. While they were building their Toutiao then the Douyin business, he was also planning on applying that same capability to TikTok.
Today, while most of the financial activity is coming from the China business, Tiktok now has almost 350 million daily active users around the world. So it really is fun, it’s been achieving its goal of being a global internet company.
We were all watching the U.S. election very tensely last week. With the new Biden administration starting next year, what do you think will come of U.S.-China economic relations in the next four years?
What I hope from a Biden administration is a much more constructive approach towards U.S. China relations, and a more nuanced approach that recognizes that China is not a cold war adversary — what they are is a strategic competitor on their way to being the largest economy in the world.
Competition can be healthy, they can make both parties stronger and there can be areas of mutual interest. That doesn’t mean issues like market access and intellectual property protection are not important. But I’m hoping the Biden administration will recognize that our economies will stay intertwined for years to come, our demand and supply chains are not going to disintegrate completely, and that there’s lots of ways we can win together.
I don’t think it will be a major departure from the Trump administration, meaning that I don’t think we’re suddenly going to go back to the era of strategic cooperation.
But I believe any global investor has to have a focus on China and capitalize on the Chinese economy and invest in Chinese investment opportunities. What’s changed is that there is a higher level of risk investing in China because of tensions between the U.S. and China that have really emerged over the last five years or so.
A number of Chinese companies have recently announced they will delist from U.S. exchanges. But today, the top 10 Chinese companies listed in the U.S. represent $1 trillion in market cap, with about $600 billion from Alibaba alone. Meanwhile, the STAR Market in China has created huge wealth in one year. What are your views on Chinese companies delisting from the U.S. and coming back to the domestic market?
Some of the best Chinese companies have gone public in the U.S. market partly because the U.S. capital markets have been the most, the deepest and most sophisticated capital markets in the world, and global investors are comfortable investing there and taking advantage of that deep capital market. One of the reasons for that was the domestic capital markets in China were not well-developed and were not really accessible to global investors who wanted access to the best Chinese companies. Maybe they could through Hong Kong, but the onshore capital markets in China were not ready for global investors.
Now, that’s beginning to change significantly with the development of the STAR Market and the recent reforms. One of the things that I think was lost in the withdrawal of the Ant Financial IPO was the recent changes in regulation and reform of the Shanghai capital market that moves all markets from an approval market to our registration market like STAR, which is a very important development. It starts to paint a path towards a much more well-developed domestic capital market.
Going back to Ant. Think about a $35 billion IPO, half of the capital raised in Shanghai, half the capital raised in Hong Kong, it would have demonstrated — it will get another chance to demonstrate — that the Chinese capital markets have come a long way, and can raise significant capital, can be accessible to global investors. And I think more and more companies will choose to list there.
The question is, if the U.S. continues to have a hostile attitude towards Chinese companies, why would they subject themselves to U.S. registration, as opposed to going public in Hong Kong and Shanghai? Delisting may be an extreme decision, but I think what’s more important to keep an eye on is the next generation of great Chinese private companies. Where will they choose to go public?
I think everyone has the question in mind of whether what happened with Ant’s IPO will have investors like you rethinking the boundaries of regulation. Are you worried the balance between regulation and innovation will shift?
First, we are an investor in Ant Financial, and we have a terrific relationship with Alibaba and Ant. They’re both world-class companies.
I think what happened here is a very specific case, that shouldn’t be broadly applied to the Chinese IPO market or capital market. This is a case where regulators wanted to take a step back and more understand how Ant Financial’s growth strategy and consumer lending would impact the financial sector and impact financial regulation in China. While it’s really important that the IPO is now delayed, maybe for six months, I think it’s probably more important that global investors have clarity on what the regulations will be in China before being an IPO investor in the company.
China’s economy recovered very quickly after Covid, and is now a bright spot compared to a lot of other economies. But does too much of the growth come from the supply side? Is consumption not as strong as it is supposed to be?
China has posted a remarkable recovery from the pandemic and will be the only large economy the world to post positive growth in 2020. The shift of global growth towards Asia, particularly China, will only accelerate as a result of the pandemic, not decelerate.
If you step back and look at the last decade, you’d have to say that China has been reasonably successful in transitioning to a consumption economy. Not categorically, but overall, it has begun to a successfully grow while becoming less dependent on traditional industries, export economies, and while there’s still quite a bit of spending on infrastructure, they’re still the use debt capital to fuel growth in the economy.
But I would say that the trend towards urbanization and consumption, the consumption upgrade that’s happening in many urban environments, is leading to a more stable economy that should be less dependent on exports and therefore less cyclical.
And since we’re in Singapore today, what’s your view on Southeast Asia, in the tech sector and generally?
We’re very bullish on Southeast Asia. We have offices in Singapore (and) Jakarta. We’ve been in Singapore for seven or eight years. We have a team focused on Southeast Asia. I think it’s gonna be an incredibly exciting region for the next decade plus. The reason is that more global companies who want to tap into growth in Asia will diversify themselves from just China. And they’ll avail themselves to some of the more significant economies in Southeast Asia.
The other thing that’s happening in Southeast Asia right now is the growth of digital entrepreneurship. We saw this in China over the last 15 years and whole generation of terrific entrepreneurs everywhere. We’re beginning to see that, and we’ve seen it over the last four or five years the same high quality entrepreneurship happening in Southeast Asia.
So I think there’s a lot of reasons to be optimistic and will also continue to have a tailwind from the growth in China.
What sectors do you think we should watch in China. Where might the next unicorns might come from?
I think two areas. Keep an eye on the consumer sector. The most exciting consumer businesses we are investing in all have a technology component to them, whether it’s social media or e-commerce.
I mentioned life sciences. China is going to spend more on health care, whether it’s the government or individuals, and there’s a need for greater health care capacity in the system, higher quality options, and you combine that with what’s going on in life sciences, and health care has become a real focus for us.
Audience question: What do you see as the major risk as you look at opportunities in China?
I think the principal risk of China is regulatory, both inside of China and outside of China. We talked about U.S.-China relations. That does pose a significant risk — one, it could limit opportunities for Chinese companies to access global markets and that would be a source of value creation and growth.
And also domestically, the Chinese government could change its view on certain regulatory policies. I think the fundamentals of the economy are very sound. From a macro economic base, the country is also very sound. This is not a country that has high inflation or super-high interest rates, or tremendous economic volatility, like we see in places like Brazil, where we also invest.
So it really is about government policy towards the private sector, and what’s going to happen outside.
I have a very strong view that if we can find a way for a constructive engagement between the U.S. and China that sees the competition through a healthier lens, or a healthy framework, that there can be tremendous prosperity both in China and the U.S., and that would be great for investors if that happens.
For more on the 2020 Caixin Summit, click here.
Contact reporter Anniek Bao (firstname.lastname@example.org) and editor Flynn Murphy (email@example.com)
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