Against the backdrop of a surging tide of private investment, the unique exploration of China Zhongji Investment

Looking east from the Hengtai Center in Lizheqiao, Beijing, one can see numerous tower cranes and more than ten landmark buildings under glass curtain wall installation within a couple of kilometers. The busy Jingkai Expressway runs nearby. Beijing Daxing International Airport is 41.9 kilometers to the south, and Xiong'an New Area is another 83 kilometers further south.

Although bustling with traffic and high-rise buildings, Lizheqiao, known as the "second financial street," is far less prosperous than Beijing's financial street.

Under the warm afternoon sun of winter, the emerging Lizhe business district seems to be nurturing a "new spring".

China Zhongji Investment, established in August 2016, is located here.

Rooted in the Beijing-Tianjin-Hebei region, with a view towards all of China

On the 22nd floor of Hengtai Center, after a brief exchange with President Wen Yuanhua, the conversation shifted to the rapidly developing landscape of privately-owned investment platforms.

Following the establishment of China Minsheng Investment in 2014, several other similar platforms were established, including those in Jiangsu, Zhejiang, Guangdong, Guizhou, Shandong, Shanxi, and Xiamen. Recently, there have been industry rumors about the potential establishment of a platform in Hubei.

President Wen Yuanhua frankly stated: "Financial investment is still a new thing for China. China's PE industry is only a little over a decade old. Privately-owned investment platforms are a unique Chinese creation, without any readily available successful experiences to follow. In the past three or four years, although the development of China's privately-owned investment platforms has been rapid, there are still no particularly successful models or examples. Everyone is essentially 'crossing the river by feeling the stones.'"

He believes that Blackstone, established in 1985, has become a world-renowned investment institution after more than 30 years of development. The "Blackstone model" is worth learning from for domestic investment institutions. However, China's privately-owned investment platforms have their own unique positioning and mission. Each province and city has its own special circumstances, and privately-owned investment platforms need to explore unique development paths that are suitable for China's national conditions, the specific conditions of their region, and their own characteristics.

Wen Yuanhua said: "In the two years since its establishment, China Zhongji Investment has been 'crossing the river by feeling the stones' and 'exploring as it advances.' We seize the development trend of the integrated development of the Beijing-Tianjin-Hebei region, especially the historical opportunity of the Xiong'an New Area, rooting ourselves in the Beijing-Tianjin-Hebei region and deploying across China. Many of the companies we invest in are located throughout the country, such as Hefei JiangHang in Hefei, Anhui; Suzhou Ship Power in Suzhou, Jiangsu; and Dayun Automobile in Yuncheng, Shanxi."

How would you evaluate China Zhongji Investment's development achievements over the past year?

President Wen Yuanhua recalled that at the beginning of 2018, China Zhongji Investment held a strategic planning meeting in Beijing's Xiangshan area.

"The economic situation was very severe, and regulatory policies were unprecedentedly stringent. We decided to adjust the allocation of major asset classes: reducing equity investments, increasing debt investments, and even preparing to clear out our secondary market holdings. Looking back, this decision was correct. In 2018, the market was so cold, yet as a young investment company, we still achieved considerable returns, which should be considered a good result." He said.

Wen Yuanhua has served as President of China Zhongji Investment since November 2017. He previously served as president of Tianjin Bank and held key positions in important financial institutions such as the headquarters of the China Construction Bank, Central Huijin Investment, and China Merchants Bank.

Wen Yuanhua said: "Our investment has always emphasized value investing and stability. Under the severe economic situation in China, we have acted accordingly, and at the beginning of 2018 we proactively stopped some high-leverage businesses. For a newly established company, stable development is paramount."

From the industry, to the industry

When discussing investment cases, Wen Yuanhua spoke with great familiarity.

In March 2017, China Zhongji Investment made a Pre-IPO investment in BAIC New Energy; in April, it invested in Jingyuan Environmental Protection; in May, it invested in Daying Technology and Dayun Automobile; in November, it made a Pre-IPO investment in Hebei Construction; in December, it invested in Dokem; in February 2018, it invested in Hefei JiangHang; in May, it invested in Zesheng Technology; in June, it invested in Suzhou Ship Power; in August, it invested in Blue Arrow Aerospace…

In addition, we have also invested in several real estate projects and manage several industry funds.

He believes that in the two years since its establishment, China Zhongji Investment has basically completed its business layout in key areas such as high-end equipment manufacturing, medical health, and the military industry.

Wen Yuanhua briefly introduced the basic value philosophy of China Zhongji Investment: We position ourselves as an active value investor, selecting strategic emerging and innovative industries by deeply researching industry development laws and trends. We mainly focus on companies with sufficient growth and expansion potential, special industry status and outstanding core competitive advantages, and strong management team execution capabilities.

He pointed out, "Our investment philosophy particularly emphasizes 'industry' and stresses respecting the basic laws of industrial development. This is because we are 'from the industry, to the industry.'"

The so-called "from the industry" mainly refers to the fact that in August 2016, spearheaded by the Hebei Provincial Federation of Industry and Commerce, nine well-known private enterprises in Hebei Province jointly invested 10 billion RMB to establish China Zhongji Investment. The nine shareholders include Rongsheng Development, New Au Capital, Yangyuan Drinks, Donghua Group, Lanchi Group, Strong, Jiujiang Wire, Xingbao Department Store, and Rongsheng Holdings, covering real estate, financial investment, food and beverage, automobiles, new energy, department store retail, and steel industries.

After its establishment, China Zhongji Investment basically determined a "1+4" business model, namely a "one platform, four pillars" development strategy, with investment business, fund management, industrial operation, and wealth management as the four pillars supporting an international comprehensive financial service platform.

In terms of investment direction, China Zhongji Investment consciously selected areas closely related to the industries of its nine shareholders for key investment in the industrial chain. For example, China Zhongji Investment vigorously developed real estate funds; another example is Lanchi Group, a large enterprise group mainly engaged in automobile sales and after-sales market services, which is at the end of the automobile industry chain. China Zhongji Investment has invested in BAIC New Energy and Dayun Automobile in the new energy vehicle sector, which it is optimistic about; the former is a leading manufacturer of new energy passenger vehicles, while the latter is a leading manufacturer of new energy trucks.

In the view of China Zhongji Investment, the shareholders have a large market share and strong voice in the corresponding industrial chain. Relying on the advantages of its shareholders, making investments in closely related industrial chains can not only help shareholders improve their industrial layout and business expansion, but also promote business synergy among related enterprises, thus indirectly improving the safety margin of investment projects.

In addition, a considerable portion of China Zhongji Investment's investment team consists of compound talents with backgrounds from prestigious universities at home and abroad, possessing expertise in both "industry" and "finance."

Wen Yuanhua explained that industry is the cornerstone of investment. Only by deeply understanding the industry can one better serve the industry and create value. Investment detached from the industry is like "water without a source." Only by injecting limited capital into the most promising industries or enterprises at the most opportune moment, using funds effectively, can the value of capital be maximized.

The so-called "going to the industry" mainly refers to the fact that China Zhongji Investment is not only an industrial investor but also an industrial operator. This is very rare among domestic investment institutions.

China Zhongji Investment operates the Zhongji Rehabilitation Medical Platform, which fully owns and manages Shijiazhuang Zhongji Rehabilitation Hospital. The hospital covers an area of 11,000 square meters and has 118 beds. It is currently one of the largest rehabilitation medical institutions in Shijiazhuang, with the most advanced equipment and the most comprehensive rehabilitation disciplines. Since its trial operation in September 2018, the hospital has received widespread praise from patients.

However, Wen Yuanhua also pointed out that operating the Shijiazhuang Zhongji Rehabilitation Hospital may not be profitable in the next two or three years, but this move will significantly help improve people's livelihood in Hebei and enhance the level of health and wellness services.

He said that Shijiazhuang's rehabilitation and medical care infrastructure is weak. The operation of Shijiazhuang Zhongji Rehabilitation Hospital can be said to benefit the local people. The model of Shijiazhuang Zhongji Rehabilitation Hospital will be replicated in Hebei Province and even nationwide in the future. China Zhongji Investment directly participates in industrial operation through rehabilitation hospitals, which also helps to make investments in the medical and health sector more scientifically, rationally, and efficiently. Shijiazhuang Zhongji Rehabilitation Hospital is the company's "experimental field" and "base" for future integrated "production, investment, and financing" in the greater health sector.

 On December 13, 2018, Shijiazhuang Zhongji Rehabilitation Hospital held a free clinic in the Nanyuan Community on Zhen'er Street. 

Bring in, go out

Mentioning economic benefits and social benefits involves a deeper level of positioning and mission of the "people's investment model." President Wen Yuanhua, in conjunction with the company's development, mentioned that the primary task of China Zhongji Investment is still to create returns for shareholders and investors. This is the "lifeline" on which the company relies for its development.

In September 2016, when China Zhongji Investment was established, the Hebei Provincial Committee and Provincial Government issued an instruction:

"China Zhongji Investment is an innovative measure for Hebei Province to deepen its investment and financing system reform and expand investment from social capital, and will surely successfully open up a new model for group investment and cross-border development of private capital in our province. The establishment and operation of China Zhongji Investment is of great significance to stabilizing the investment confidence of private capital and stimulating the vitality of private capital. We hope that China Zhongji Investment will adhere to the development strategy of integrating industry and finance, fully exert its dual advantages as entrepreneurs and financiers, integrate enterprise resources, innovate its operating mechanisms, and expand its market space."

Wen Yuanhua believes that China Zhongji Investment was born in Hebei and at the special time node of the coordinated development of Beijing-Tianjin-Hebei in 2016. Various internal and external factors intertwine, giving it inherent policy advantages, regional advantages, and advantages of "being close to the water tower."

He defines the role that China Zhongji Investment should play as: a "good assistant" for the breakthrough development of the private economy and a "good helper" for the government to develop the economy. Its positioning is summarized as: Beijing-Tianjin-Hebei private enterprise cooperation platform, financial investment platform, industrial integration platform, and international cooperation platform.

He believes that China Zhongji Investment is a "capital promoter" that further serves and promotes the joint development of the regional private economy and stimulates deeper vitality; it is also a "capital grip" that obeys and serves the regional economy, promotes the transformation of old and new driving forces, and promotes the shift of financial resources from the virtual to the real.

For many years, a biased industrial structure has been an important characteristic of Hebei's economy. Against the backdrop of the central government's continuous advancement of supply-side structural reforms and the resolute elimination of backward production capacity, Hebei's economy has encountered difficulties due to the gradual decline of traditional pillar industries.

He said that private investment enterprises such as China Zhongji Investment have flexible mechanisms and can make bold attempts to discover new driving forces and introduce new economies for Hebei. In the past six months, the company has increased its investment in high-tech and "hard technology" fields. In the future, it can introduce some enterprises to Hebei and develop related industrial chains.

Blue Arrow Space is a private launch service provider invested in by China Zhongji Investment in August 2018. It independently masters the core technology of liquid methane engines and is currently the only private enterprise in China and the third in the world, besides Space X and Blue Origin, with the ability to design and manufacture liquid oxygen methane engines.

China's commercial aerospace industry has ushered in a "golden age," but the role of leading high-tech enterprises such as Blue Arrow Space in driving regional economic development has not yet been fully realized.

He also gave an example, saying that China Zhongji Investment has recently paid more attention to the 5G communication field, especially after investigating a high-quality optoelectronic communication chip company in Silicon Valley, USA. After the investment is completed, they may consider introducing some high-quality projects to Hebei and using this as a base to promote the development of the industrial chain.

Wen Yuanhua introduced that in 2019, the effort to "bring in and go out" will be strengthened, and several overseas investment projects currently underway are being actively pursued. These investment projects may also contribute to the transformation and upgrading of Hebei's economy.

Wen Yuanhua emphasized that China Zhongji Investment is an international comprehensive financial services platform, whose investments include not only PE investments and private equity securities investments, but also real estate investments. In 2019, the company will increase its investment in areas such as non-performing assets and new urbanization.

He pointed out that the new airport is expected to be put into operation in September 2019, and the Beijing section of the Beijing-Xiong'an high-speed railway will be opened at the same time. At the end of 2019, the Beijing-Zhangjiakou high-speed railway will be officially opened. The coordinated development of Beijing-Tianjin-Hebei will achieve a major breakthrough in 2019. The 2022 Beijing Winter Olympics are also under intense preparation. China Zhongji Investment hopes to have more opportunities to participate and play a greater role in undertaking the integration of Beijing-Tianjin-Hebei, the construction of Xiong'an New Area, and the transfer of industries from the capital.

Wen Yuanhua believes that wealth comes from value. Only by enhancing and realizing value can wealth growth be achieved. China Zhongji Investment's PE business will, of course, first focus on one by one high-quality enterprises, but it also hopes that these enterprises will bring richer returns to shareholders for regional economic development, coordinated development, and transformation and upgrading, and make greater contributions to Hebei, national development, and social progress. China Zhongji Investment's real estate and new urbanization business focuses more on the integrated services of Beijing-Tianjin-Hebei coordinated development and new urbanization construction.

Production and investment integration helps the "new spring" of the private economy

When talking about the vitality of the people's investment platform, Wen Yuanhua pointed out, "The group development of private enterprises is a historical necessity. In the 40 years of reform and opening up, the vast majority of private enterprises have made significant progress. However, with the changes of the times, the past overly traditional business model is difficult to sustain. In the process of China's economic transformation and upgrading, some relatively well-developed private enterprises face common issues such as transformation, breakthroughs, expansion, and diversification. While strengthening their main businesses, they also hope to expand horizontally or extend vertically in upstream and downstream and closely related diversified industries. However, their own strength is limited. Private capital generally has a smaller scale, difficulties in financing, weak risk tolerance, and difficulty in generating synergy of capital and resources. The market economy emphasizes "optimal allocation of resources." Therefore, group development and joint investment have become popular. This is an inevitable product of the development of China's private economy to a certain historical stage."

Wen Yuanhua cited three points from General Secretary Xi's speech at the symposium on private enterprises to discuss his views on the future of the MinTou platform.

First, we should make greater efforts to lower the threshold for private capital to enter key areas. Focusing on addressing shortcomings, expanding domestic demand, and stabilizing employment, we should introduce a large number of projects with significant commercial potential and clear investment return mechanisms in areas such as environmental protection, transportation and energy, and social undertakings to private capital, and actively support private capital holding.

Second, we should cancel and reduce the additional conditions that hinder private investment from entering fields such as elderly care and medical care, help solve problems related to land, funds, and talents, strengthen mid- and post-event supervision, and create a fair and competitive market environment.

Third, we should further implement tax reduction and fee reduction measures, especially the implementation of the VAT reform tax reduction measures. We should improve the mechanism of financial services supporting the real economy, adopt measures such as establishing a loan risk compensation mechanism to alleviate the difficulties and high costs of financing for small and micro enterprises and private enterprises, and take multiple measures to reduce corporate costs.

He believes that the central government's series of measures to support the development of private enterprises will further strengthen the confidence in the development of the MinTou platform and bring substantial benefits to its development.

Wen Yuanhua said: "The biggest difficulty for the development of small and medium-sized private enterprises is still the issue of funding. In accordance with the policy spirit of the central government's support for the development of private enterprises, improving the mechanism of financial services supporting the real economy and adopting measures such as establishing a loan risk compensation mechanism can effectively alleviate the difficulties and high costs of financing for small and micro enterprises and private enterprises. The market plays a role in optimizing resource allocation. The MinTou platform can aggregate more funds, resources, and industry chain synergy partners to promote the better development of enterprises with development potential. Many enterprises are facing transformation, but transformation is not something that can be accomplished overnight. The MinTou platform, through its investment business, can conduct "pilot testing" and "exploration" in the early stages, and to a certain extent, reduce the risks of enterprise transformation. The core value of the MinTou model lies in its role as an external supplementary force for regional economic development, stimulating vitality, acting as a "lever," guiding more capital and funds into high-quality enterprises, and playing a "leveraging role."

Looking at the Lize Business District and the Jingkai Expressway outside the window, President Wen Yuanhua said: "Riding the "east wind" of coordinated development of Beijing-Tianjin-Hebei and taking advantage of the special historical opportunity of the Xiong'an New Area's development, China Zhongji Investment is confident in becoming a first-class investment institution with Chinese characteristics and an international comprehensive financial services platform."

On the desk, an electronic globe is slowly rotating, and a large airplane is facing south, about to take flight. On the most prominent position of the bookshelf, a copy of "Millennium Xiong'an" is standing upright.