New China expected to emerge post-Covid – the question is when?

The pandemic has changed investors’ perception of China, but those who have held on to their Chinese investment strategies keep the faith that the country’s capital markets will bounce back, according to panellists at the Milken Institute Asia Summit 2022.

“This room in some ways speaks volumes about our perception of China,” said former Hong Kong Exchanges and Clearing (HKEX) chief executive Charles Li at a panel on Thursday (September 29).

“If we had this conference session three years ago, this room would be packed. And this panel would be one of the most popular panels,” he said. “Now, a lot of people don’t seem to care, at least temporarily.”

However, he remains hopeful that when China does reopen, people will see China differently. “We’re going to see a new China, I’m very hopeful for that,” he said during the event held in Singapore.

The panellists generally agreed that their investments had proved resilient during the pandemic, although most of them were venture capitalists that were active in sectors that performed well during Covid-19.

For instance, Nisa Leung, managing director of Qiming Venture Partners, had several successful healthcare and bioscience companies in her firm's portfolio, while Cynthia Zhang, founding partner of Future X specialised in deep tech ventures.

Herry Han, chief executive of single-family office Soul Capital said that the current generation of entrepreneurs has a knack for figuring out problems, healing and learning from mistakes.

“A lot of the big industries today – digital, payments, logistics etc -  were not here 10 years ago. China not only solved problems but successfully made something out of them. In terms of Covid, I think it might happen similarly,” he said. “It will take a lot of effort, but there will be a lot of lessons learned throughout the process, and the government, the population and the entrepreneurs will learn from that process and quickly bounce back.”

The panel sidestepped questions about whether they anticipate China’s reopening soon after the National Party Congress in mid-October, but recognised that foreign investors are looking forward to having physical access to the country again.

“When we talk to outside investors, they have not been able to go into China to conduct due diligence. They really don't know what's going on, especially the public investors. So when the border opens up, and they can meet companies face-to-face, I think that that will really make a difference,” Leung said.

“The key question is what's going to happen after October,” said Li, who now runs his own venture MicroConnect, which counts Li Ka Shing’s Horizon Ventures and Adrian Cheng as early investors. “I think China's going to be very different in two major areas. One, the development is probably no longer going to be about incremental growth anymore – it is still important, but it will no longer be the obsessive KPI of China over the last 30 years.”

“The focus is going to be back on redistribution, rather than continuing to grow. But the problem is that people get very, very nervous when they hear redistribution, because they think we are redistributing what is already owned like property… But the key question is who has that wealth right now?”

“Whether it’s through the tax system, or bank system, or SOEs (state-owned enterprises), I reckon 50% of that value is somewhat in the state’s hands,” he said. “So that essentially is all about the priority of the next decade, is not about getting another 6% Gross every day and redistribute more equitably in that incremental growth. The priority is to make sure that we do not redistribute this with corruption,” he added.

The government has prioritised redistribution to compensate for” the losses that generations of migrants have suffered, or environment has suffered, or cap depositors have suffered, or land through population has suffered, in order to support the industrialisation and urbanisation of China. So that completely newly created wealth that is contrary see it still very much in state,” he said.

“So what we are doing today is to say the old traditional model that China pretty much adopted, that has evolved into the Chinese financial system – that financial system is not working for the little guys it is not working for the real economy.”