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5 June 2017

Editorial: Venturing ramifications as China nears parity

In 2005, private enterprise made up 5% of the MSCI China stock index by weighted market capitalisation. Last year it was 48%.

Author: James Mawson, Editor-in-chief

Venture capitalist Mary Meeker’s excellent 2017 Annual Internet Trends report, presented last week at the Recode conference, captures a lot of information in 355 slides but possibly the best one to capture the global ramifications from the rise of the tech industry over the past decade is how non-state-owned enterprises (SOEs) have been “increasingly driving wealth creation and economic growth and jobs” in China.

In 2005, private enterprise made up 5% of the MSCI China stock index by weighted market capitalisation. Last year it was 48%, Meeker, a partner at Kleiner Perkins Caufield & Byers, said in collaboration with local investment manager Hillhouse Capital.

Just as in the US, where the five largest listed companies are all tech ones, so China’s non-SOE growth has been driven by Tencent and Alibaba, which have combined market caps of more than $600bn.

That both are perhaps the largest venture capitalists in the world, having invested billions of dollars in each of the past few years in hundreds of deals has contributed to their success. It is no surprise both have had supportive corporate venturing investors – Naspers for Tencent and Softbank for Alibaba – to signify what is possible. Interestingly, while Softbank has leveraged its Alibaba success and 25-year track record to raise $93bn in its Vision Fund last month, Naspers is understood to have no similar plans to follow suit even after its greater success with owning about a third (worth more than $100bn) of Tencent, an insider said citing its desire to remain under the radar as much as possible.

But while Meeker is right to point to private enterprise’s role in China’s macro successes and their combined stock performance, the other 52% are SOEs.

Here, decisions made by China’s State-owned Assets Supervision and Administration Commission of the State Council (SASAC) to explore how its $3.5 trillion in corporate assets held through more than 100 companies can be best managed are significant.

Last month, SASAC’s Shenzhen subsidiary became a limited and strategic partner for UK-based Silk Ventures when it closed a China fund at $500m. Effectively, Silk is looking to help these SOEs globalize and bring more international entrepreneurs into China with their help.

There has been much hand-wringing in the press recently over China and the US vying for global leadership but the actions on the ground in this innovation capital and entrepreneurial ecosystem are more collaborative and hopeful than just a macro picture would show. Such collaboration is built on meeting and understanding and looking for ways to work together. But understanding has to happen first and we are delighted representatives from all the main private and state-owned enterprises can speak at the GCV Asia Congress on 21 September in Hong Kong where they can meet their peers from across Asia and the west.

As Frances Wood, former British Librarian, noted in her excellent latest collection, Great Books of China, her favourite Chinese poem is:

How swiftly it dries,

The dew on the garlic leaf!

The dew that dries so fast

Tomorrow it will fall again,

But he who we carry to the grave

Will never more return.

 

 

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