Five core themes in China’s smart economy

As China evolves from a digital economy to a smart economy, Huaxing Growth Capital (HGC) shares how it identifies investment opportunities with high growth potential

The outbreak of the COVID-19 pandemic in 2020 profoundly changed our lifestyles and greatly accelerated the process of digitalization. Unprecedented computing power, and deep learning technologies are helping with processing, analyzing, and gaining value from the vast amounts of data. Investors can now benefit handsomely from unique opportunities that help move China from a digital economy to a smart economy.

As the growth-stage investment arm of the investment bank China Renaissance (CR), HGC is backed by CR’s powerful platform and resources. CR is widely regarded as a leader in smart economy deals and has advised some of the largest Chinese tech giants on their deals.  

HGC has identified five core themes with high growth potential: smart consumerism, smart industries, smart healthcare, smart enterprises, and smart technologies.

Smart consumerism
The rise of China’s middle class has already been a powerful driver of economic growth, offering significant opportunities for business. Leveraging the power of technology and data, consumer brands will be able to meet, and even anticipate, new customer demands. They can offer extraordinary consumer experiences by combining both online and offline distribution channels. At the same time, we will witness a new generation of highly efficient supply chains empowered by core technologies. Our notable investments in this sector include leading online fashion marketplace with authentication services Poizon, one-stop solution provider for baby and pregnancy products Babycare, and designer toy retailer in China, Pop Mart. Pop Mart owns intellectual properties and has an artist community.  

Smart industries
Smart industries cover a wide range of sectors. For instance, the automation of the auto industry will transform the entire sector, from electrification to intelligence. Advanced driver assistance systems will evolve to incorporate advanced autopilot features that will free up the attention of human drivers. In addition, China’s plan for carbon dioxide emissions to peak by 2030 and for achieving carbon neutralization by 2060 will further accelerate the low-carbon energy transition and bring investment opportunities in the field of new energy.  

HGC invests for the long term and follows a thematic approach of investing, underpinned by rigorous top-down research. Within smart industries, research enables the team to identify market trends and insights earlier than other competitors and gain exclusive access to deals and a high visibility of the deal pipeline. Our notable investments in the smart automotive industry include leader in China's new energy vehicle market Li Auto, automotive electronic product manufacturer HiRain Technologies, leading provider of Smart LiDAR Sensor Systems Robosense, and lithium-ion battery company SVOLT.

Smart healthcare
Mature technologies in important fields such as genetics, immunology, metabolism, and microbe therapy will enable precision treatment and personalized treatment of diseases in the next ten years. Also, early diagnosis and screening will aid the timely prevention and treatment of major diseases, improving the quality of life for millions of people and greatly reducing the public health-related costs. Our notable investments in the healthcare sector include genetic sequencing firm MGI, leading in vitro diagnostic reagent raw materials and one-stop solution provider Fapon Biotech, and leading pharma contract research and manufacturing company WuXi AppTec.  

Smart enterprises
Smart enterprises will also digitalize further with the development of Software as a Service (SaaS), constituting the fourth core theme. SaaS, a software distribution model that provides effective support for enterprises from production to management, will continue its rapid growth in China. According to industry magazine SaaS Industry, the country’s cloud infrastructure spending surged by more than 32% in the last quarter of the year, from around $107bn in 2019 to $142bn in 2020. SaaS services will expand beyond finance, education, manufacturing, real estate, and software development industries. Our notable investments in this sector include one-stop artificial intelligence products and service platform Mininglamp Technology, one-stop service platform for Chinese B2C e-commerce export seller Dianxiaomi, and cloud computing company UCLOUD.

Smart technologies
Lastly, smart technologies form the cornerstone supporting the development of the other four themes. Technological innovation will accelerate the development of the smart economy, becoming the driving force for long-term, balanced, and high-quality economic growth. One of our notable investments in this sector is Navitas Semiconductor, an industry leader in gallium nitride (GaN) semiconductors. HGC has provided Navitas advice throughout its lifecycle on a range of strategic, operational, and M&A matters.  

HGC provides portfolio companies with one-stop financial and strategic planning services including financing, IPO and M&A, covering the entire advisory process, by leveraging CR’s extensive capabilities. It also regularly communicates with portfolio companies regarding capital markets and resources integration. 

About 
Huaxing Growth Capital (HGC) is the principal private equity investment arm of China Renaissance. HGC focuses on China's 'new economy' investments and provides growth capital to sector champions with a proven business model in China's new economy. Since its inception in 2013, HGC has focused on growth-stage companies with opportunities to add value through strategic and operational support, as well as follow-on fundraising and capital markets expertise. HGC has an unparalleled industry network and extensive market coverage. We provide strong returns for our investors with a high hit rate. As of June 30, 2021, our funds have invested in 10 out of the 38 largest private companies (from the top 100 companies in China) over the last 10 years, representing a 26% hit rate. We continue to work closely with innovative founders and companies that bring greater value and convenience to people’s everyday lives, and deliver solid returns for our investors.