LONDON – On 10 July 2017 Mr. Sun, Founding Partner of Smallvillle Capital, delivered a speech here at Cocoon Networks on how to connect Chinese capital with European tech innovations. Cocoon Networks, Europe’s first Chinese-funded investment platform and financial investment consultancy, is proud to have hosted this insightful talk.
Smallville Capital now belongs in China’s top 50 ranking of PE investment institutions and it was established in 2009. The company has successfully overseen investment portfolios worth at least 10 billion RMB and it manages investments across a range of asset classes that include private equity, venture capital, energy, infrastructure, credit and FOFs. Since 2015, Smallville Capital has become a dynamic investment platform combining multiple levels of the capital market with a range of investment tools such as the new VC FoFs, seizing early-stage investment opportunities. SmallVille Capital generates remarkable investment returns by adopting a persevering and disciplined investment approach.
Mr. Sun, Founding Partner of Smallvillle Capital, is responsible for major portfolio investments in foreign currency and strategic management, as well as cross-border investments. He has a multi-cultural background and has gained experience in both international and Chinese venture capital enterprises. Mr. Sun is an Investment Committee member at the Ideology Public Foundation Ltd, guest lecturer at Peking University and Tsinghua University, and guest professor at The University of Hong Kong.
Shortly before Mr. Sun started his talk, CEO and Founder of Cocoon Networks John Zai delivered a brief speech introducing Cocoon Networks to the audience. With our London-based headquarters and offices in four major cities in China, we facilitate the creation of fruitful and lasting business collaborations between China and the European continent.
In the first section of his presentation Mr. Sun introduced the Belt and Road Initiative (B&R). Put forward by Chinese president Xi Jinping in 2013 and inspired by the historic Silk Road, the B&R aims to promote inclusive development over the next 100 years trough cross-border consultation and exchange. The primary goal of the initiative is to improve the movement of economic factors and the efficient allocation of resources. The areas of focus are policy co-ordination, connections amongst facilities, unhindered trade, financial integration, and intercultural bonds.
Mr. Sun then went on to discuss the reasons why China would feel the need to pursue policies such as the B&R. Starting from the 1980s, when China adopted its opening up policy, the Chinese economy flourished like few others. Economists and politicians around the globe wondered about the reason behind China’s exceptional growth. Over the past 30 years the Chinese government paid great attention to one statistic in particular: GDP. In China one can now gain access to all sorts of GDP statistics specific to geographical areas and economic sectors. Given that all Chinese officials are appointed by the central government, municipality heads, too, pay utmost attention to GDP. This resulted into internal competition between different areas or municipal governments within the Chinese territory. This was not the case in countries such as the UK or the USA, where the relationship between municipality heads and the central government is weaker. Mr. Sun emphasised that, in his view this inter-municipal competition has been the key driver of China’s outstanding growth over the past 30 years. As a consequence, China now ranks second for GDP in the world; it has the largest foreign currency reserve; and it is home to the world’s most comprehensive industry system.
China’s exceptional growth also brought difficulties. When a country reaches a certain (high) growth rate, it is hard to maintain the same growth rate over time. Additionally, a long period of fast growth can produce unbalanced structures within the economy. According to Mr. Sun these challenges can find origination in the above-mentioned inter-municipal competition, which has been very intense. China had to think of an approach able to reduce the impact of such challenges. The policies comprising said approach can be divided into policies concerned with cross-border relationships and policies focussing on domestic issues. Domestically, different municipalities are being encouraged to cooperate rather than compete, shifting the attention of those in power from internal comparisons to global appraisals. We are thus seeing China break geographical and illustrative boundaries as more and more small provinces start to collaborate. The state of things has not only required China to have bilateral cooperation with single countries but also to nurture multi-country cooperation. This is exactly where the belt road strategy originated. These policies and strategies, Mr. Sun goes on to specify, reflect a new methodology called ‘the political and economic methodology of Xi Jinping’.
Smallville Capital intensely cooperated with incubators in the US with the aim to bring their technology and their expertise to China. The company has also cooperated with Israel and is hoping to work with UK and with the rest of Europe too. Smallville Capital experienced numerous successes in its cooperation with Israel and with the US. Some issues, however, also became evident: stereotypes, cultural differences and potential for misunderstandings. In the US, for example, the way China was portrayed by US media did not reflect the China Chinese people know: this resulted into the creation of an additional gap between countries and companies. Important cultural dissimilarities between eastern and western culture require both parties to be as accommodating as possible. Finally, the use of different regulations, methodologies and values can result into damaging misunderstandings.
There are three potential solutions to these challenges. The first one would be to value 'win-win cooperation', i.e. agreements that are beneficial to both sides. Smallville Capital, for example, realised that in the US there were locally-produced but unused technologies that could however be be highly profitable in Chinese markets. Exchanges resulting from such observations allow for an optimal allocation of resources: if one side has the market while the other one has the technology, both can contribute capital to make their collaboration a success. The second point made by Mr. Sun would be to promote this cooperation in an incremental way. This would involve nurturing more and more successful cooperations able to show foreign tech companies that China is a trustworthy business partner. Finally, cooperation should not only happen between businesses but also between governments. Legislative industry restrictions should be re-dimensioned or aligned across borders in a way that allows barriers to be lowered and exchanges to happen more smoothly.
The event was concluded by a brief networking session.