Bruce Liu, CEO of Esoterica Capital talks to CNBC’s Arjun Kharpal at the annual East Tech West event in Nansha district, Guangzhou, China on December 1, 2021. Liu lays out the investment framework into Chinese tech companies as Beijing continues to tighten regulation of the sector.
Bruce Liu, CEO of Esoterica Capital talks to CNBC’s Arjun Kharpal at the annual East Tech West event in the Nansha district of Guangzhou, China on December 1, 2021.
GUANGZHOU, China – Beijing’s regulatory crackdown has worried markets, but one fund manager has come up with an investment framework to navigate the uncertainty.
China has tightened regulation of its domestic technology sector in many areas, from data protection come Antitrust, in the last year. The swift moves caught international investors off guard, taking billions of dollars off the value of the country’s giants.
Bruce Liu, CEO of Esoterica Capital, said investors should take an approach in sync with China’s goals of “common prosperity”, growing national champions, responsibility social responsibility and state-led investment. “Commonwealth” refers to Chinese President Xi Jinping promote moderate wealth for all.
During a panel discussion at CNBC’s annual East Tech West conference in southern China, Liu said “common prosperity” is not a “zero-sum game” and it is “really about developing a bigger pie, and a better and fairer slice.” That could benefit some companies.
The investor says that companies tapping into the so-called lower-tier cities and lower-income citizens in China, where he estimates around 1 billion people, will see growth.
He said the e-commerce company Pinduoduo, short video app Kuaishou and food delivery service Meituan are the main names to play this theme.
Pinduoduo and Kuaishou are very focused on exploiting users in rural areas of China, especially farmers. Both companies have sought to help farmers sell goods on their platforms to users across China. Meituan has a so-called group-buying business that allows members of the same population or area to group together and buy goods in bulk at a discount. This is seen as key to attracting lower-income users in China’s smaller cities.
“This [companies] are following the lower tier cities served. This is in line with the central government’s blueprint. It’s about making the cake bigger. That comes from the lower tier cities,” Liu said, in a separate interview on the sidelines of East Tech West.
‘National Champion’
China is looking to boost its national strength, Liu says, and that requires so-called national champions – companies that represent innovation.
“We need companies like Alibaba, Tencent, Huawei, to be there to represent the pinnacle of technology,” Liu said, naming some of his favorite tech giants.
“They are still the benchmark for Chinese technology,” added Liu.
Investors said that in addition to their core business, both Alibaba and Tencent are investing in the main areas of Strategic priorities for Beijing include cloud computing and semiconductors.
Liu also favors companies associated with the sectors China is investing in.
“China is taking a top-down approach, versus a Western-style, bottom-up approach to support national goals, you know, important things like smart infrastructure. , even semiconductors,” Liu said.
‘Generalization’ about regulation
China’s regulatory tightening was the main theme of CNBC’s East Tech West conference. In another discussion, Ben Harburg, managing partner at MSA Capital, said there are a lot of misconceptions about regulatory moves.
“I think a lot of dangerous generics are being brought up, and misunderstandings are being fostered, that are affecting the way they invest in this market. And like I say, that could lower valuations for the market,” he said. all of us,” Harburg said.
“The reality is that these businesses are actually much healthier, and the framework for understanding regulations is much more predictable than what is being espoused in many Western media sources.”
Many of the tech companies that have been sold off by investors are now “all very cheap,” Liu said.
