NIE 2023 | Qian Shan Capital Wang Cheng: Opportunities and Challenges in Hardware Technology Investment

The following is the transcript of Wang Cheng's speech:

The China New Technology Venture Capital Corporation, established in 1985, was the first private equity investment institution in our country. Starting from the establishment of Shenzhen Venture Capital in 2000, followed by Jinding Investment in 2007-2008, and then a wave of investment institutions entering the market from 2014-2015.

The investment landscape is constantly changing, and the fund models of investment institutions are also being adjusted. There are comprehensive funds, sectoral funds, and specialized funds.

And now, whether it's any of these fund models, everyone has reached a consensus, which isIn the field of hard technology, it is a track that any investment institution would definitely pay attention to, and it is also an industry that our new front-line investors are very eager to enter.

The concept of 'hard technology' was proposed by Dr. Mi Lei from the Xi'an Institute of Optics and Fine Mechanics, Chinese Academy of Sciences, in 2010. It has since been recognized by the state. In 2018, Premier Li Keqiang mentioned during a working meeting of the National Science and Technology Leading Group that it is necessary to lead society and enterprises towards the field of hard technology, highlight research in this area, and strive for more innovative achievements. Subsequently, the Science and Technology Innovation Board was established to support and encourage 'hard technology' enterprises to go public, strengthen information disclosure, rationally guide expectations, and enhance supervision.

The Outline of the 14th Five-Year Plan for National Economic and Social Development of the People's Republic of China and the Long-Range Objectives Through the Year 2035 also clearly states that current representative areas of hard technology include optoelectronic chips, artificial intelligence, aerospace, biotechnology, information technology, new materials, new energy, intelligent manufacturing, etc.

The hard technology industry typically has the following six characteristics:Time accumulationThat is to say, the research and development, as well as transformation of any scientific and technological achievement, require a significant investment of funds and time;Property rights barriersThat is, for technological inventions to achieve results or form products, professional intellectual property protection must be applied for;Innovation is key,The invention or discovery of science and technology has certain criticality, such as solving 'bottleneck' scientific and technological problems;Economic cornerstone,The application of technology to the national economy will surely play a strong supporting role in economic development;Technological innovationThat is, the invention of technology has breakthrough and disruptive power;Technology leadershipIt means that the technology is unprecedented and, after its invention or discovery, can be applied to the national economy, leading to its development.

Since 2015, national ministries and commissions have introduced various policies to support the development of hard technology. This year's government work report also emphasized once again 'science and technology policies should focus on self-reliance and self-improvement', 'improving the new national system', 'giving full play to the government's organizational role in tackling key core technologies', and 'concentrating high-quality resources around key manufacturing industry chains to jointly advance key core technology research'.

Multiple policy supports, along with the cooperation of the capital market, are the foundation for the development of the hard technology industry.

Firstly, humanity is undergoing a new transformation.

Throughout history, all the productive forces provided by humanity have been obtained through their own labor. After years of continuous change, we have experienced three industrial revolutions. The first industrial revolution saw the replacement of human labor with steam engines to provide productivity; the second industrial revolution transitioned from mechanization to electrification; the third industrial revolution moved from electrification to digitization. The fourth industrial revolution, which is also the era we are currently experiencing, is an era of artificial intelligence and rapid development in science and technology.

When technology is applied to the lives of the civilian economy, it can accelerate the entire economy. Take our large aircraft as an example. The large aircraft was initiated by the State Council in 2007, made its first test flight in 2017, and completed its first commercial voyage on May 28, 2023, with the C919 large passenger aircraft. This large aircraft used 2.5 million parts and had a pipeline length exceeding 80 kilometers, almost stretching from Shanghai to Suzhou. It marks a major breakthrough in China's scientific research and development. According to statistics, as the global market demand for commercial aircraft increases, there has been a new demand of about 9,200 aircraft in China alone, including more than 1,200 orders for the C919. The price of one C919 is around 800 million RMB, which also indicates that it will contribute over trillions of yuan to the national economy over the next decade.

In addition, there have also been many very outstanding startups in the aerospace field, such as Blue Arrow, which launched Zhumao-2, and Starship Technologies, etc.

Secondly, with the decoupling between China and the US, technological bottlenecks, and the establishment of the US chip bill, Sino-US trade frictions have been increasing.Especially in 2019, a large number of documents were issued that were unfavorable to China's commodity exports. The core issue was the export transfer of science and technology, with as many as over 30 key technologies being affected by 'bottlenecks'.

At the same time, the US chip bill has restricted the export of high-power chip technology from abroad to China, including limiting Chinese companies' ability to hire international talent. This has forced us to develop our own hard technology and solve these technical problems to meet the national economy's demand for such technologies.

There are several directions worth paying attention to:

First is the field of intelligent electric vehicles.I'd like to share a set of data with you. In the first quarter of this year, China's automotive market exported approximately 1.07 million vehicles, with each vehicle priced at about $18,000. Converted to Renminbi, the price per vehicle is about more than 130,000 yuan. Last year's total production and sales volume was around 27 million vehicles, and the annual new output value in the automotive sector is about 4 trillion yuan.

Last year's transaction volume in the used car market exceeded 20 million units, amounting to about 1 trillion yuan. Adding maintenance and repair services, which are estimated at around 700 billion yuan, and insurance services at over 700 billion yuan, the total is about more than 6 trillion yuan. The real estate market reached its peak in 2022, with a value of approximately 18 trillion yuan. This means that currently, the combined service industry for automobiles and the automotive aftermarket accounts for about one-third of the real estate market.

Last year, the market penetration rate of intelligent electric vehicles was 25.6%. Out of 100 cars sold, 25 were new energy vehicles, and this number is still growing at a high rate. It is expected that by 2030, the production of new energy vehicles will reach 90%. Currently, the total automobile market in China is about 420 million, and if all vehicles are to be replaced with new energy ones in the future, this track is very worthy of attention and investment. This is also a track that Qianshan Capital focuses on investing in.

Second is biomedicine technology.On September 25th, two companies on the Hong Kong Stock Exchange simultaneously rang their bells. One is Youzhiyou Biotech, which has invested about 100 million yuan in research and development, with a market value of over 3 billion on the day of listing. The other listed company operates in the logistics industry, with an annual revenue of about 5 billion last year and a profit of about 400 million yuan. At the time of listing, the market value of this company was only around 1.4 billion. The valuation gap shows that the capital market has a completely different recognition of traditional industries, hard technology companies, and biotechnology enterprises.

In the future, I personally am optimistic about niche tracks in energy sectors such as semiconductors, the Internet of Things, energy storage, and hydrogen energy, as well as the artificial intelligence track.

While seizing opportunities, we also face many challenges. For instance, valuation bubbles and irrational investment; the immaturity of investment institutions; the patience for capital returns due to overly long cycles; market operating environment instability, lack of intellectual property protection, and high regulatory standards are just some of the challenges.

When we examine the opportunities and challenges of hard technology investment, we find that this field is full of infinite potential and exciting prospects. Hard technology not only has great potential for technological innovation but also has a profound impact on society, economy, and environment. However, the accompanying challenges cannot be ignored; these challenges require wise strategies, firm determination, and innovative thinking to overcome.

While investors and business leaders have discovered opportunities in the field of hard technology, they must also always keep the following points in mind:

1) Long-term vision:Investing in the hard technology sector usually requires a long holding period, necessitating patience and a long-term perspective from investors. It involves continuously pursuing innovation and enduring uncertainties.

2) Diversification:The hard technology sector encompasses multiple areas, from life sciences to new materials, and then to artificial intelligence and energy technologies. Investors can diversify their portfolios to mitigate risks.

3) Cooperation and Alliance:Partnerships and cross-sector alliances are crucial for solving complex hard technology problems. Actively seeking cooperation in investment and development is an effective strategy.

4) Acute insight:It is crucial to continuously monitor technological trends and market dynamics, and understand when to adjust investment strategies.