How to play China’s tech crackdown and the potential winners
Bruce Liu (CEO of Esoterica Capital) talks with CNBC’s Arjun Kharpal on the occasion of the East Tech West, an annual event held in Guangzhou’s Nansha, China. It took place Dec. 1, 2021. Liu outlined a framework that allows investors to make investments in Chinese technology firms, as Beijing continues tightening regulations.
Bruce Liu is the CEO of Esoterica Capital and talks with CNBC’s Arjun Khrpal on the annual East Tech West event held in Guangzhou’s Nansha, China. This took place Dec. 1, 20,21.
GUANGZHOU, China — Beijing’s regulatory crackdown sent jitters through the market, but one fund manager has come up with an investment framework to navigate the uncertainty.
China tightened its regulation of the domestic tech sector in many ways, starting with data protectionTo antitrustIn the past one year. International investors were caught off guard by the swift actions, which have wiped billions off the nation’s value.
Bruce Liu is the CEO at Esoterica Capital. He said that investors need to align their approach with China’s goal of “common prosperity”, growing national champions and social responsibility, as well as state-led investments. “Common prosperity” refers Chinese President Xi Jinping’sPush for moderate wealth to all
Liu stated that “common prosperity”, which isn’t a zero-sum game, is about “growing the pie larger, and making it better and more equitable.” This could be a benefit to several businesses.
According to the investor, companies that tap into lower-tier cities or lower-income citizens of China should experience growth. He estimates China’s population at around 1 billion.
Kuaishou, Pinduoduo, and Kuaishou have a strong focus on rural China. Both businesses have aimed to assist farmers in selling goods to their users. Meituan offers a group buying service that allows residents of the same area or community to buy bulk goods at a discounted price. This can be used to attract lower-income Chinese citizens in small cities.
“These [companies]they are following cities in the bottom tier who are less well-served. These are all part of the central government’s blueprint. This is all about expanding the market. “That is happening from lower-tier communities,” Liu stated in an interview at East Tech West.
Liu said that China is looking to boost its national power and that requires so-called national champions — companies representing innovation.
Liu noted that companies such as Alibaba, Tencent and Huawei are necessary to ensure the best technology.
Liu said that they are the standard for Chinese technology.
An investor stated that they had both their core businesses and were looking to expand into other areas. AlibabaAnd TencentAre investing in the key areas strategic priority for Beijing including cloud computing and semiconductors.
Liu also advised backing companies in areas China is currently investing.
Liu stated that China is adopting a top down approach rather than a Western-style, bottom-up, approach in order to help national goals such as smart infrastructure and semiconductors.
CNBC’s East Tech West conference focused on China’s tightening regulatory environment. Ben Harburg (managing partner, MSA Capital) said that there were many misinterpretations made about regulatory actions during another discussion.
I believe that a lot are making dangerous assumptions and spreading misunderstandings, which are impacting the market’s investment decisions. Harburg added that it can cause valuations to drop for us all.
These businesses actually have a better chance of success and the regulatory framework is more predictable than what is being promoted in Western media.
Liu stated that many technology companies which have been bought by investors were “all very inexpensive now.”