Where Does The Investment Opportunity Lie In China? Said A Veteran Chinese Investor

摘要: As the Chinese national economy is entering the post-industrial era, economic structure is gradually transforming from commodity manufacturing-based to service-based, which creates lots of investment opportunities. Liu Zehui, a partner at Legend Capital, shared his investment experience and understanding of the Chinese capital market in this article.

(Chinese Version)

Liu Zehui: I prefer light asset companies and entertainment startup projects, since it’s easier to become profitable.

Liu Zehui: I prefer light asset companies and entertainment startup projects, since it’s easier to become profitable.

As the Chinese national economy is entering the post-industrial era, economic structure is gradually transforming from commodity manufacturing-based to service-based, which creates lots of investment opportunities, such as the combination of IP and cultural products, upgrading of middle-class family’s entertainment, internet TV series and internet films, etc.

At the same time, the rise of mobile internet is expediting the process. As paid music is on the rise, people have regained their passion for CDs and attached higher importance to cultural values and emotional features instead of mere functions.

Liu Zehui, a partner at Legend Capital, started to focus on this area a few years ago. Legend Capital even set up a fund in culture and sports sector, targeting the upgrading of middle-class family’s ways of entertainment.

“Our focus is the emotional needs of China’s emerging middle class. More specifically, we target middle-class families who have certain purchasing power, have their own understanding of life and pursue happy and quality life,” Liu summarized.

It’s easier to turn entertainment products profitable

Therefore, the more practical question is: where to find potential projects in this sector?

Liu Zehui has always focused his attention on finding what young people love and preferred light asset companies and entertainment startup projects, since it’s easier to become profitable.

According to him, young people born in the 1990s and 2000s will constitute the main body of China new consumption group. They prefer quality service and happy purchasing experience. For example, workout-based based fashion e-commerce platforms and other mobile products and services will appeal to this group of consumers.

This is an era of universal entertainment. Entertainment constitutes one of the major parts of consumption. Young people have more time for consumption. As wealth accumulates, the general public’s need for entertainment and travelling products is also increasing. At the same time, an increasing number of young people are opting for creating original products. Thanks to favorable policies by the Chinese government, a high-quality IP can be sold for over 10 million RMB. In the future, the entire entertainment chain will grow healthier.

For the past few years, Chinese are becoming increasingly confident in the cultural market, and young people are showing stronger support for cultural products based on traditional Chinese culture. While the market feedback for traditional Chinese cultural products is positive, he also wishes to seize this consumption wave of cultural and sports products of the young generation.

“Cutting-edge technologies such as VR and AR as well as products such as unmanned drones will expedite the development process of the entertainment and sports sector. Currently, the gap at home and abroad is narrowing. We can learn much from the post-industrial development of Europe and the US after World War Two,” Liu told TMTpost.

Liu revealed that he himself also loves new things and ideas and has a good few hobbies. In spare time, he also reads Chinese traditional history classics and believes in the idea “The profound men (gentlemen) nourish the roots. With the roots established, the way grows.” In a complex world, he attempts to solve problems with simple methods. In fact, he keeps a habit of reading two to three books every month, ranging from macro and micro economy to art & history and modern technology.

However, he doesn’t think he’s blindly chasing a hot-spot area (consumption upgrading of the middle class). Instead, he focuses on this area as a result of his independent thinking. According to him, it’s better not to invest in areas too earlier and further. Otherwise, it’s likely to turn out in vain. For him, the best approach to becoming profitable is: doing necessary preparation before opportunity appears.

Out-of-box thinking and innovation are in dire need

Buried industry for 11 years, he’s invested in 9 projects which later launched IPO. On the last day of 2016, an entertainment project he invested in received a letter of acceptance from CSRC. We can tell the change of hot-spot sectors from an investment curve Liu showed TMTpost.

When he entered the industry in 2006, he focused mainly on traditional consumption and retailing industry. By 2010, he’s shifted his attention to modern service industry. Later, as mobile internet and online finance are on the rise, he began to focus these areas and seize the opportunity to invest in Shenzhou Zuche and Paipai Loan.

In the 1990s, Liu witnessed the boom of business banks and investment banks. When he was in charge of overseas IPO business in the investment bank, he began to realize the value of investment and decided that he could do it for a lifetime.

At present, Liu, by himself or together with his team, has completed investing in over 40 companies, among which 9 have completed IPOs and several of them have quitted the market after being acquired by rivals.

Among all the companies that went public after he invested in, Foshan Saturday Shoes Co.,Ltd was the first one.

At that time, the company grew from a regional brand to a national one and its revenue rose from several million RMB to over one hundred million RMB. Other companies he invested in, such as BINF, PHOENIX Travelling, etc, also brought him rich returns.

Shenzhen YUTO Packaging Technology Co., Ltd, another company he invested in, also went public recently in Shenzhen Stock Exchange. The company is mainly a provider of high-end brand packaging solutions and is focused on providing "the solutions of integrated product manufacture and supplying, creative design and R & D innovation, global operation and service" for customers.

“It’s quite a natural process to shift from products to services. Since 2013, traditional consumption model has been transforming. We do feel being left behind sometimes, but we’ve also realized that there was much room for innovation and out-of-box thinking,” Liu told TMTpost.

In addition, Liu told TMTpost that in the past, people used to attach high importance to temporary profit; nowadays, however, there’s no standard business model, so everybody is endeavoring to find answers to questions such as: how to maximize profit? In this case, history can be put in use to analyze projects. “How far you look back in history will determine how far you reach out in the future,” Liu said at last.

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[The article is published and edited with authorization from the author @Sun Cheng, please note source and hyperlink when reproduce.]

Translated by Levin Feng (Senior Translator at PAGE TO PAGE), working for TMTpost.

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