I have met several VC firms in China throughout my travels, and I have found James Mi of Lightspeed China, one of the most talented, reliable, and insightful investors. James took the time to sit down with me to answer a few questions on China’s VC landscape.
James is co-founder and Managing Director of Lightspeed China Partners, a leading China-focused early-stage venture capital firm with investments in internet, mobile, services, and information technology. Previously, James was Managing Director with Lightspeed Venture Partners (LSVP) and started the firm’s Beijing office in 2008. Headquartered in the Silicon Valley, LSVP manages more than $2B in assets and has globally-spread offices. In 2012, James was named by The Founder Magazine as one of the “Top 10 Most Respected VC in China.”
DAC is a privately held investment manager and advisor focused on special situation investments with an absolute return objective. DAC sources, values, and manages Asian investments including single and multi-credit non-performing loans, distressed real estate, and distressed equity and structured financings. The firm was founded in 2002 and currently manages more than $400 million (US) across two funds (22 investments), several separate accounts and numerous investment-specific engagements across five countries in Asia. It is considered to be the largest buyer of mainland non-performing loans, having bought more than 45,000 soured loans from mainland China lenders since its founding. Phil Groves, DAC’s founding partner, shares his insight on DAC and the overall investment state of China.
What is the State of China’s Economy?
Is it headed for a major correction? Eventually yes, but not for the next couple of years, due to the regime change and its unique economy. So nothing drastic will take place. The key is for the leadership to control social unrest by implementing sound economic policy. Also, keep track of the savings rate, which has been very high, in part due to a lack of investment alternatives for the average Chinese national. If it decreases, it will certainly impact domestic investment as well as China’s appetite for foreign sovereign debt.
The most hotly debated topic between the US and China has been the undervalued Chinese Yuan, but an equally important development has been quietly developing over the last year– its internationalization. Having made more than 12 trips to China throughout the last two years, this topic has been by far the one discussed most with various Chinese executives and officials and I believe it will have major implications.
So why is the government pushing the globalization of the Yuan? My contacts tell me that it is due to the government’s focus on quality of growth instead of absolute growth. There are two specific goals: 1) raise the standard of living by getting the Chinese to save less and buy more, 2) increase wages by dramatically increasing the value-add part of China’s manufacturing industry.
A convertible, international Yuan will support China’s growth strategy in the following ways:
- It will allow the Chinese to invest their savings at home and abroad. This in turn should boost the rate of return on their savings, and their disposable income, thus increasing their willingness to spend.
- It will help China’s economy to balance trade and investment flows, an essential requirement as the economy becomes more sophisticated.
- It should lead to the further development of China’s local capital markets and modernization of its monetary policy, including continued liberalization of interest rates. This would also become an effective tool to control inflation, particularly as wages rise.