Robin Song, Partner in our Investment & Corporate Finance team, has worked closely with private and public enterprises throughout his career of more than thirty years in China. Having published articles and commentary on China with leading domestic publications, he has recently compiled a thought leadership article on the country’s current economic transition and its private equity investment environment. Below are select highlights from the working article, with the full Chinese language version published on the Lunar Capital website (link as available below).
China’s policy-makers are favoring intelligent investment
China’s economic transformation is at a critical juncture, transitioning from a policy and investment led model of growth, to an economy powered by a rising consumer class. Private and policy-led investment funds are converging their focus towards this new model of growth, and policy-led reforms are directing intelligent capital to the domestic businesses that will lead China for decades to come. In the past, fiscal policy and government investment were the primary tools to stimulate growth, but these concepts alone cannot address the modern difficulties faced by many businesses in China. Reforms and policy efforts must support domestic enterprises by establishing a framework for businesses to improve and professionalize operations, including efforts to premiumize and differentiate products, improve distribution, upgrade marketing and branding, and establish clear and concise corporate strategies.
Historically, businesses have found it challenging to access financing from traditional lenders, which has resulted in the number of alternative investment managers and government-backed investment funds to grow considerably, where their efforts focused on simply providing capital. This has changed. Today, investment managers must creatively source investment opportunities, apply value-add initiatives for the “new China”, and ultimately create real value for their investors and the economy as a whole. This transition will help drive innovation in China and has long been a hallmark of Lunar’s approach and focus.
Entrepreneurs and founder/managers are increasingly turning toward professional managers for capital to grow their businesses and expertise to help guide them. With this, investors are now assuming more responsibility, and are directly addressing challenges faced by businesses. Within the Lunar portfolio, we have provided our brands with the capabilities needed to provide higher quality products and services, and to successfully compete with the growing number of MNCs eager to tap the growth of the Chinese consumer. These efforts are benefitting society in general, and are noticed by policy-makers who are supportive of this type of investment capital.
Supporting real growth in China requires a balance of domestic and global investment. Professional investment managers are selective, and an investment should be perceived as a validation and an indication that the business has the potential to grow and ultimately succeed. Local governments are also working to attract professional and intelligent investment by establishing clear sets of guidelines and incentive schemes, and are also helping develop the value chain of financing in China – debt financing, equity financing and refinancing.
China is also witnessing the growth and development of an aspirational middle class, who are playing an increasingly important role in the global economy. Addressing the needs and wants of these individuals, requires value-add and operationally-involved investment managers to not only provide capital to grow and scale businesses but, more importantly, professional processes and guidance to support real and sustainable long-term growth. These drivers are supporting the growth of Lunar’s pipeline and are presenting opportunities to build strong businesses and brands in the “new China”.