In this episode of China Money Network, listen to the highlights of a panel discussion on investing in China and India featuring Gary Rieschel, co-founder of Qiming Ventures, Simon Eckersley, founder and CEO of Hao Capital, and Sam Gupta, founder of Indian investment firm, Grand Trunk Capital.
Listen to the podcast online, subscribe in the iTunes store, or read a summary transcript below.
Gary Rieschel on the leadership transition:
I'm personally very optimistic about the new leadership. When you look at Xi Jinping and Li Keqiang, they had done interesting things in their past. Both are business oriented, and both are pragmatic. But perhaps the most important appointment was Wang Qishan as the head of China's anti-corruption efforts. He created the first joint-venture bank, China International Investment Corp, with Morgan Stanley in the mid-1990s. Already during the last weeks after the announcement, he's talked about how people should have an open and transparent discussion about the wealth of the leadership in China. That's something you would never have heard under Hu Jintao and Wen Jiabao.
Gary Rieschel on the Chinese economy:
As to the economy, you have to keep things in perspective. Of course, 7.4% is slower than before, but 99% of the countries in the world would be dying to have that growth, especially on a US$6.4 trillion base. So, you shouldn't focus on the growth rate in China any more. You should focus on the aggregate GDP being created every year. If you look at the Yangzi River Delta, it's bigger than Indonesia, and it's growing at 30% faster than Indonesia. China adds in total half of Indonesia, or a quarter of California, or a quarter of India, every year in GDP. So when you think about aggregate GDP, it's still staggering. However, investors do have to be more selective now compared to the past in terms of choosing investments.
Simon Eckersley on doing private equity investments in an economic downturn:
What we do in private equity is sometimes quite divorced from (the growth numbers). We are impacted by macroeconomic and policy changes, but generally, we are operating in a much more micro level. Certainly in terms of the sectors that we are focused on: the consumers, healthcare, environmental control. There have been sustained growth.
The idea of a 7% GDP growth, that's just an average. There are plenty of sectors that are experiencing declining rates in China right now, such as the steel and real estate sector. But there are other sectors with much stronger growth. We have invested in a company that is a one-stop shop for home furnishing. It had 50% annual growth even during this supposed downturn.
Simon Eckersley on the difficulties in the exit market:
It's effectively almost impossible to bring a Chinese company to the U.S. That's effectively closed at the moment. It's difficult in Hong Kong, in Germany, the U.K, and many other listing places. You have started to see trade sales occur, but it's in infancy. We have certainly been impacted by the exit market during the past year or so. As a result, we have been paying much more attention to trade sales, which is always something that we have thought about, but now we are much more actively soliciting potential acquirers of our portfolio companies. But, I think the IPO market will come back – it's almost a fashion thing.
Specifically in China, there have been lots of investments and therefore there needs to be lots of exits. Between the Shanghai Stock Exchange, and the Shenzhen Exchange, and Shenzhen's Small Cap Exchange, there is a queue of 800 companies that are waiting to go public. But the pipe is quite narrow. This will take some time to alleviate. But I believe this is temporary. When you are in the middle of it, three or six months seem like a long time. But looking forward, there will be many more trade sales. That queue may be higher, but in the meantime, there will be many more companies that will be able to go pu...
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