Weblog with daily updates of the news on a frugal, fair and beautiful China, from the perspective of internet entrepreneur, new media advisor and president of the China Speakers Bureau Fons Tuinstra
Geopolitics tensions, domestic problems, and a range of political crackdowns: China got its fair share of troubles over the past months, but super-investor Jim Rogers remains confident about his investments in China, he tells at the Money Levels Show.
China’s authorities have been cracking down on cryptocurrencies, educations, gaming, health care, data, and platforms. Financial analyst Winston Wenyan Ma looks at how foreign investors can navigate through the bloody battlefield for Bloomberg.
The finalization of the China-EU investment agreement – after seven years of negotiations – on December 30, 2020, is a big deal, says London-based China lawyer Mark Schaub in an overview of the fallout of the deal for the China Law Insight. “Is it a Big Deal? – Yes. China is the EU’s second-largest trading partner and the EU is China’s largest trading partner. Over Euro1 billion per day of trade flows between these two giants.”
Mark Schaub:
Living in London for the last year and being subjected to Brexit 24/7 made one feel as if the approval of the Brexit deal by the UK parliament was less news but rather the season finale of a reality TV show. However, as luck would have it 30 December had 2 not 1 big trade stories with China and the EU agreement major terms in principle of the EU-China Comprehensive Investment Agreement (“the EU-China Agreement”).
Like Brexit the EU-China Agreement still needs to go through an approval process. Although, ultimate approval seems likely it is less certain than the approval of the Brexit deal. Indeed, when one remembers that in 2016 the Wallonia region was able to hold up the EU’s free trade deal with an innocuous Canada – the risk of derailment cannot be fully excluded.
Is it a Big Deal? – Yes. China is the EU’s second-largest trading partner and the EU is China’s largest trading partner. Over Euro1 billion per day of trade flows between these two giants. In a world of increasing friction in cross border trade and investment the EU-China Agreement is a welcome signal that the large trading blocs (or at least two of them) see benefit in aligning and opening their markets as well as providing business with greater certainty and predictability. 2020 has not been great for predictability or certainty.
What Does it Cover? The main pillars of the EU-China Agreement are: (1) market access, (2) level playing field and (3) sustainable development.
A very brief overview is as follows:
Market Access – China will provide greater market access for European investors in China – this will be in some ways a concept similar to how Hong Kong SAR has been provided greater access under CETA. From China’s perspective the EU-China Agreement guarantees existing market access rights to EU markets in sectors like agriculture and fisheries (there they are again I never knew until recently the core importance of fishing to the world economy!). Chinese companies will also have greater access to sectors such as manufacturing, retail, wholesale and renewable energy. For EU business China has committed to an unprecedented increase in market access for EU investors by removing protectionist restrictions[1]
Which Sectors are the Winners?
Sectors that will benefit include:
Manufacturing – especially automotive, transport vehicles, medical devices and chemicals. However, China will still be able to block foreign investment in some sectors, especially those with significant overcapacity or particularly sensitive sectors[2] – but they do this also to domestic companies. The NDRC has clamped down on damaging overcapacity for decades. One example is that it will not be possible to establish or expand capacity in respect of traditional petrol-powered automobiles unless the existing factory’s productivity exceeds the industry average. Similar restrictions have applied to Chinese domestic enterprises for decades.
Services – in particular financial, international maritime, environmental, construction, computing, auxiliary air transport services, cloud services, and private health services. However, in some areas restrictions will remain and in others EU investment will be off-limits such as China’s internet services market (except for end user internet access services) and some fund management services.[3]
China internet giant Tencent has a gigantic investment portfolio, but has a rather hands-off approach when it comes to those investments. Tencent watcher Matthew Brennanexplains at Technode how to look at that strategy.
Technode
According to Matthew Brennan, founder of research consultancy China Channel and co-host of Technode’s China Tech Talk podcast, Tencent’s relatively hands-off approach can be attributed to the experience and personalities of two of the company’s top decision-makers: Executive Director and President Martin Lau, and Chief Strategy Officer James Mitchell. “Both Martin and James think more like investment bankers than operations-focused managers,” explains Brennan. “Much of Tencent’s profit generation still lies in gaming, a sector in which they are known to take more controlling and larger stakes. Yet for the rest of their investments, they seem comfortable trusting existing management and taking a much less active role.”
As of the end of Q2 2019, Tencent reported an investment portfolio amounting to over RMB 417 billion (about $59 billion), including China and overseas.
Investments are flooding into China´s innovative industries. But investing in China is a completely different game from the traditional VC approach, tells William Bao Bean, Managing Director of Chinaccelerator, in VentureCon Japan, according to E27. China is providing more finance, and more competition.
E27:
(One) reason why Hong Kong is seen as a great environment to do business is its proximity to Mainland China and its often seen as a gateway to that giant market. William Bao Bean, Investment Partner of SOS Ventures ... attempted to explain what’s been happening in China in a fireside chat.
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Bean paints a succinct picture: “40 billion was done from VCs in the US last year in China and last year, 20 billion was done on the angel side. Most of it was late stage but now there is a huge amount of activity going on in the early stage. Chinese investors want a quick return in two to three years — they’re not willing to wait ten,” he said.
Speed is clearly one China’s strong suites and Bean said that this is reflected in generations of successful entrepreneurs giving back to the ecosystem. “Things have gotten so competitive that second generation entrepreneurs are starting to get acquired by Alibaba and Tencent, and these entrepreneurs do not want to continue working past their earn out — so they’re funding the third generation of entrepreneurs. So you have a blossoming of the early stage and before there were hundreds of angels, but now there are tens of thousands of angels investing,” he said.
According to Bean, China has produced a whopping 16 unicorns and he said investors have been swapping their investment strategies. While traditional Series B investors are switching to A, those doing Series C are now focusing on the super early stage — and Bean said the valuations are coming up to meet them.
