Emerging Industries (Bi-Monthly Newsletter, Issue 7)

Date: Jul 2015
Board for Strategic Emerging Industries in China close to be launched
There has been much discussion on launching a new board for Strategic Emerging Industries (the "Board") in China so as to diversify the financing channels for various enterprises. However, as for the structural framework of the new Board, general public has had no idea about the Board until Liu Shian, the deputy general manager of the Shanghai Stock Exchange, made a detailed introduction to it at the China Equity Investment Forum 2015. "The board for Strategic Emerging Industries is targeted at attracting emerging and innovation-oriented industries, " Mr. Liu said in his statement.
With the new Board close to being launched, there have also been rumors that its main purpose is to welcome enterprises that were listed abroad for relisting in China. However, this would be easier said than done. It will definitely take much effort to make the new Board a reality.
Chinese investors react positively to home delivery services
Even though most customers are still unfamiliar with the business models of some Chinese companies that offer home delivery services, such as "Good Cook", an app that helps find professional chefs to cook in one's home, or Guagua, a start-up that washes cars wherever they are parked, Chinese PEs and VCs have been paying close attention to this kind of new business model for some time.
"Good Cook" was established in 2014. According to its founder, Xu Zhiyan, it obtained an investment of USD 5m from an Chinese angel investor, and is closing another USD 5m in the near future.
Uber-like new business models force innovation within China's taxi industry
With the fast development of IT, emerging Internet enterprises with new business models are posing tremendous challenges to traditional businesses and the ways that they are managed. For example, Uber, the ride-sharing service company, has been the subjects of a series of lawsuits and bans since its establishment, including recent investigations by China's local courts in Guangzhou and Chengdu.
It is no doubt that Uber generates a great threat to China's traditional taxi industry and its way of regulations. However, one cannot just simply try to contain or ban a new business simply because of its challenges or threats. The emergences of Uber and local services such as Didi and Kuaidi have also given China's relevant organizations a chance to reconsider and reform their current ways of regulating the taxi industry.
After a slow in Q1: insiders suggest that PE firms invest in familiar industries
China's PE firms have generally seen buoyant growth in recent years due to favorable government policies. Industries such as bio-technology, health care & wellness, machinery manufacturing, clean technology, real estate and the Internet all witnessed an investment boom in 2014. Although more and more enterprises consider PE investments this year, industry insiders such as Qu Xiang, the CEO of Yu Jin Capital, point out that after the 2014 boom, PE transactions were already down by USD 6bn year-on-year at the end of Q1 2015.
Given the slow economic growth, increased competition and valuation multiples this year, it will be very difficult for PEs to outperform 2014's market average return on investment. According to Qu Xiang, in order to guarantee higher returns, PEs should focus on areas in which they have more expertise, rather than just following the most eye-catching and make blind judgments.
Internet enterprises: pursuing a stable user base to attract investments
Investors tend to be attracted by projects with a large user base when investing in mobile Internet sector. To solidify such a user base, insiders suggest entrepreneurs to focus on two strategies: platforms and specialization. Specifically, Internet service providers are encouraged to develop a targeted service or sector based on a platform in the initial stages, and then to dig into a specialty.
A successful example is Dianping.com, an independent third party reviewer site with a smart phone app. By contrary, Renren, the Chinese social networking giant, is facing a downturn in its user base and revenue, due to its weak mobile platform and unattractive content.
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