The United States has been the world’s largest economy since 1872, when it surpassed the U.K., but according to recent estimates from the World Bank, China’s economy is expected to surpass the U.S. sometime in 2014 – if it has not already.
Against the backdrop of that tectonic shift in the global economy, the University of Virginia Darden School of Business recently hosted a summit in Shanghai on investing in China, headlined by two financial newsmakers, Liang Xinjun and Yifei Li.
Xinjun, the billionaire co-founder and CEO of Fosun Group, one of China’s largest private investment companies, predicted that the next 10 years for China will spur a transition from quantity to quality as the middle class grows, the demand for consumer and luxury goods rises and the mobile Internet booms.
Li, named one of “Ten Women To Watch in Asia” by The Wall Street Journal's Asian edition, is chair of China investments for the Man Group hedge fund. She discussed the emergence of China’s nascent hedge fund industry. Earlier in her career, Li held leadership roles at Viacom and MTV China, where she was credited with bringing American music stars like Eminem and Britney Spears to China.
In a keynote discussion with Darden Dean Robert F. Bruner, Li spoke of the spectacular transformation of China over the past three-plus decades and the country’s dynamic, evolving investing environment. “As Charles Dickens said, it was the winter of despair and now it is the spring of hope,” she said, summarizing China’s transformation.
Foreign investors see huge potential in China but, so far, have made limited inroads. In fact, Chinese foreign direct investment in the U.S. just surpassed U.S. foreign direct investment in China, said Jerry Peng, CEO of Four Seas Capital Management and a 2003 Darden graduate, at the May 9 event.
For those looking to invest in China, understanding the complexity and uniqueness of the Chinese market is key, said Qing Shan Liu, CEO of Manulife TEDA Fund Management Company. “When Western investors look at China, they use Western models to analyze the Chinese economy. That might not be the right approach,” he said.
“The challenge is to balance global perspective with local expertise,” said Hua Fan, head of the fixed income and absolute return investment department at China Investment Corporation, the giant sovereign-wealth fund.
“There are compelling investment opportunities that have scarcity in capital,” said Patrik Edsparr, CIO and co-founder of Tor Investment Management, “but there are also a lot of fads.”
While foreign investors are still trying to unlock the Chinese market, a nascent Chinese investor class is looking abroad and beginning to make an impact in the West.
“China is entering the era of hedge fund industry development,” Li said.
Institutional investors are diversifying, family offices and foundations are emerging and some of China’s complex investment regulations are being relaxed.
“Before, there were only three organizations that could invest offshore,” she said. Now, many organizations, including insurance companies, state-owned enterprises and family enterprises, are seizing opportunities, onshore and offshore.
As an example, Shuanghui International Holdings recently acquired Smithfield Foods, the largest producer of pork products in the U.S., headquartered in Smithfield, Virginia. The $4.7 billion deal was the largest acquisition to date of a U.S. firm by a Chinese company, noted former Virginia Secretary of Commerce and Trade Jim Cheng, a 1987 Darden graduate and now a principal of New Richmond Ventures.
“Americans tend to see China as a ‘Made in China’ logo,” Cheng said. “It will help the public perception and the investing perception when more Chinese brands establish themselves in America. Branding is so important for the image of a country.”
The summit was presented by the Darden School’s Center for Asset Management and Center for Global Initiatives and sponsored by CFA Institute China, Virginia Economic Development Partnership and Shanghai United Media Group. The event was attended by about 150 people from across Asia and the U.S., along with some U.Va. students from Darden’s Global MBA for Executives program and the McIntire School of Commerce.
The second annual Darden Shanghai Investing Summit will take place in May 2015.