Ventech ConNEXTion Series | Post-Pandemic China - Part 1
The past three years in China have been impacted by the pandemic and lockdowns, along with the increased instability for foreign businesses. The year 2022 is particularly challenging with frequent lockdowns. At the end of last year, there was a huge peak in cases. It is estimated that 80% of the population caught Covid within one and a half months.
What will happen now? Is China still attractive to overseas investors?
“I have always been astonished by the dynamism and vision of the Chinese entrepreneurs and I am still impressed by the capability and vision of the Chinese people and government. I believe that 2023 will bring new opportunities and an even greater drive for success.”
_ Eric Huet, The Founder & Managing Partner at Ventech China
“It’s all about the plan to capture the domestic opportunity. Since I have been here, the per capita consumption increased by 20%. We are in a world with 700 million people in the middle class. Everybody was talking a couple of years back about 5G, but the Chinese consumers are 6G, 7G.”
_ Curt Ferguson, Managing Partner at Ventech China
Ventech, therefore, held an online panel on Feb 8, 2023, transcending both China and Europe side to explore macro-economic trends, new investment opportunities, and the potential risks that come after the gate's opening.
At the webinar, we were honored to have two prominent speakersMr. Sean Stein from the American Chamber of Commerce in Shanghai, and Weiwen Han, from Bain & Company, to share their insightful opinions on the topic
Where does China go now?
「From Pandemic to Normalcy」
At the end of 2022, the level of pessimism among investors was very high. The US Chamber of Commerce in Shanghai's business survey showed the lowest level of optimism in 24 years.
However, the situation changed dramatically early this year. China has dropped its 0 Covid policies entirely, which has improved the supply chain and increased consumer spending. The exports have returned. The strong dollar plus low prices in China are going to make Chinese exports even more competitive than they might otherwise be.
Chinese government officials have started to send very reassuring signals to investors – they have a new KPI to encourage investments. Therefore, they are promising incentives and helping with licenses and permits.
Hence, all of these lead to much more positive consumer sentiment. We have a situation where the Chinese government is encouraging investment, adopting more pro-business policies at a time when there is potentially slower growth in the U.S. and the EU. That’s really attracting much more interest from the foreign investment communities.
「From Risks to Opportunities」
The increasing geopolitical tension and instability strained the China-U.S. relationship although both sides have incentives to improve the relationship. China remains very supportive of U.S. businesses and investment in China. However, even if we had government officials who wanted to improve the relationship, there is just little political support to do it due to the global environment. We know that the more hawkish the public is, the government is likely to follow.
Despite that, we saw some optimism. We saw German Chancellor Scholz visit China, and French President Macron and Italian Prime Minister Meloni are following. This kind of personal diplomacy helps stabilize relationships and will create an environment that’s conducive for EU capital and EU businesses to operate in China.
On the contrary, we will see China step up to recruit and support EU businesses as a way to help protect its relationship with the EU.
The Post-Covid Economy Recovery In China
「Confidence」
In the post-pandemic era, the reshaping of consumer confidence and investment confidence is the goal.
The Chinese government has shifted its focus to economic development. Many of China's policies are focused on recovering and expanding domestic consumption
Source: Bain & Company
The governmeny support for private enterprises also builds up confidences, especially for technology companies like major internet platforms.
Looking at the secondary market, stock indices rebounded from November 2022. The market is still optimistic about the equities in the future. Therefore, from this perspective, the secondary market leads the primary market and the economic recovery, so this can confirm the possible economic recovery in the future.
「Systematic Risks」
From the geopolitical aspect of politics and the economy, we will at least see the possibility of a global ressesion in the next one or two years, and the probability of it is not small, which is challenging to China as well.
In China, our demographic dividend has been almost lost. The government hopes that everyone will have a second or third child, which I think is quite challenging, especially after the pandemic.
Some of the dividends from the government investments may also be disappearing in the future, especially in infrastructure.
The attitude of American companies toward investing in China is generally pessimistic because of geopolitical factors.
However, from the perspective of expanding investment scale, European companies should still be relatively optimistic, even though the difficulty of operating in China has increased. In addition, investors in Singapore or the Middle East are still very interested in investing in China compared to other markets.
「Re-learn China, Re-build Confidence, Re-commit Investment」
No matter whether it is a company or an investor looking at China, I think three things need to be revisited. We called relearn China, rebuild confidence, and recommit investment.
Re-learn China: In the past three years, investors from all over the world have never been to China, and their understanding of China is very incomplete and inaccurate.
Re-build confidence: If we take it as a three- to five-year planning period, China is still the best in the world. We say that China is still the best consumer story in the world. At the same time, on top of the innovation of technology, competitive business models, or organization models, China also provides the best innovation field for the vast number of global enterprises.
Re-commit investments: Under the premise of these new cognitions and new confidences, we can continue to have a new consideration of the entire global asset allocation.
In addition to the great speeches of Mr. Stein and Mr. Han, the webinar also had a panel discussion session to cover the questions from the online audience and investors.
The panel also invited Claire from Ventech Europe; Curt and James from Ventech China. Each of whom will discuss the topic from different perspectives.
Topics include but are not limited to:
What has changed in the advice you give to startups in Europe and those who want to invest or operate in China?
What are the new engines for the growth in China? In which sector are you most optimistic for the growth and investment?
Any of the trends in the environment that are emerging in China?
How to deal with powerful competitors (government-background) in VC?
Please wait for the second part - Online Panel Discussion!