The Rising Opportunities in China and Southeast Asia Post Covid19
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October // 2020 The Rising Post COVID-19 Opportunities in China and Southeast Asia Duncan Zheng Helen Chan Mathew Coleman Megan Zheng Head of Private Equity, Principal, Vice President, Associate, China Private Equity, Private Equity, Private Equity, Southeast Asia Southeast Asia China Duncan joined Investcorp in 2020 Helen joined Investcorp’s private Matthew joined Investcorp in Megan Zheng joined Investcorp in from Nepoch/Pagoda in Beijing where equity Asia team in 2020, bringing 2017 via the acquisition of 3i Debt 2017 with 6 years of experience in he was Co-Managing Partner and led over 17 years of experience. Management, with 7 years of private equity. the firm’s buyouts in the healthcare experience. Previously, Helen was a director at Prior to joining Investcorp, she was sector as well as investments in China PwC London where she spent 13 years Prior to that, Matthew worked as an an M&A Associate in the Investment technology conglomerates including with the transaction services group, analyst and associate at Aberdeen Banking Division at Barclays. Alibaba, Meituan, Didi. with a focus on consumer deals and Standard Investments. Megan holds a Bachelor’s degree Duncan brings with him 19 years advising private equity clients. Prior Matthew holds a Master of Arts in in Accounting in Management of experience in private equity and to that, Helen spent 3 years with PwC International Relations and Modern from Tsinghua University, School investments. Toronto. History from the University of St of Economics and Management in Previously, Duncan worked as a Helen holds a bachelors of business Andrews and is a CFA Charterholder. Beijing, China, which included an Principal at Triton, the largest private administration (BBA) degree with exchange programme at the Wharton equity firm in Germany and served as first class honors from Simon Fraser School, University of Pennsylvania a Senior Advisor to China Investment University in Vancouver, Canada. in 2012. Corporation’s Global Private Markets She is also a qualified Chartered Department in Beijing. Accountant (Canada). Prior to that, Duncan worked at Hicks Muse Tate & Furst, a US private equity firm, and in the Global Consumer & Healthcare Group at Salomon Smith Barney in New York. Table of Contents 01 Knowledgeable Team with Access to the Local Market 02 Geographic Context 03 Synopsis 03 Opportunities in China 24 Opportunities in Southeast Asia 31 Conclusion THE RISING POST COVID-19 OPPORTUNITIES IN CHINA AND SOUTHEAST ASIA 1 KNOWLEDGEABLE TEAM WITH ACCESS TO THE LOCAL MARKET SUPPORTED BY INVESTCORP’S RENOWNED ASIA ADVISORY BOARD Hazem Ben-Gacem Gregory So Fred Ma Co-Chief Executive Officer Investcorp Board Investcorp International Member Advisory Board Member Savio Tung Walid Majdalani Investcorp Asia Senior Investcorp Head of Advisor Private Equity – MENA and Southeast Asia 2 INVESTCORP INVESTMENT INSIGHTS GEOGRAPHIC CONTEXT Greater China Southeast Asia Country Population GDP per capita as of 2019 Greater China Beijing 22 million US $23,460 Tianjin 16 million US $12,910 Zhengzhou 10 million US $21,781 Shanghai 24 million US $22,468 Hangzhou 10 million US $21,781 Nanjing 9 million US $23,669 Ningbo 9 million US $20,451 Wuhan 11 million US $20,792 Xian 10 million US $13,179 Chengdu 17 million US $14,769 Chongqing 31 million US $10,833 Guangzhou 15 million US $22,347 Shenzhen 13 million US $29,070 Hong Kong 8 million US $48,756 Macau 0.7million US $84,096 THE RISING POST COVID-19 OPPORTUNITIES IN CHINA AND SOUTHEAST ASIA 3 Country Population GDP per capita as of 2019 Southeast Asia Singapore 6 million US $65,233 Indonesia 265 million US $4,135 Thailand 69 million US $7,808 Malaysia 33 million US $11,414 Vietnam 95 million US $2,715 The Philippines 107 million US $3,485 SYNOPSIS In this inaugural paper from Investcorp’s Asia Private Equity Team based out of our Singapore office and our partner’s Beijing offices, we discuss how the fast adoption of new technologies in 5G, artificial intelligence, next generation healthcare and new consumerism, coupled with effective models of government, are generating attractive investment opportunities across China and Southeast Asia. CHINA Although China has become the 2nd largest economy in the world, its per capita nominal GDP is still only a sixth of that of the US, a quarter of that of Japan, and many healthcare, consumption and industrial per capita metrices are still a fraction of the developed economies, leaving ample room for sustained long-term growth. 2019 GDP per Capita (USD) 6x 11 11 45,546 4x 40,847 19 199 8,378 1 C I Japan US N GDP P P P GDP Source: International Monetary Fund World Economic Outlook (October - 2019). 4 INVESTCORP INVESTMENT INSIGHTS Highway Network Highway Speed Train Network China is the 2nd in 000’s km in 000’s km largest economy in 6% CAGR 22% CAGR the world and still 1 30 has ample room 1 for sustained 11 long-term growth 1 19 1 19 Number of Airports Number of Cars in millions 4% CAGR 237 237 12% CAGR 19 1 1 19 1 19 Mobile Internet Users Urban Disposable Income per Capita in millions (RMB) 12% CAGR 119 8% CAGR 9 652 26,467 1 19 1 19 Source: National Bureau of Statistics, Wind. THE RISING POST COVID-19 OPPORTUNITIES IN CHINA AND SOUTHEAST ASIA 5 China Metrics Compared to Rest of World 1 N GDP 9 vs. $40-65k+ in the West 15,000km will be built in the next 10 years = US + EU + Japan Being “first in & first out” in the vs. 0-2% in the West another 350m over next 10 years 124 under construction 9 G COVID-19 vs. 0-2% in the West vs. 67sqm in the US vs. 81.4 GW in the US 1 1 G pandemic, China vs. 3.5-7% in the West vs. 0.8 in the US vs. 96 GW in the US 1 1 has exhibited vs. 3% in the US vs. 36.5kg in the US vs. 121 from the US GDP 9 comparatively vs. 107% in the US 52m graduates p.a. vs. 12 from the US 19 advantageous vs. 18.5% in the US vs. 17.5m in the US vs. US 27% / EU 22% 9 19 9P resiliency to vs. 39 median age in the US vs. 161m in the US vs. 256 PB in the US 9 absorb the shock vs. 74.1% in India 484m lifted out of poverty since 1978 vs. 4.3hrs in the US 9 19 and to resume vs. 82% in the US vs. 69.2L in the US vs. 6.2% in the US growth trajectory Source: National Bureau of Statistics, Wind, CNNIC, SEIA, Fortune, Statista, Canalys, Bloomberg. China: “It doesn’t matter if a cat is black or white, as long as it catches mice” Deng Xiaoping. This saying from Chairman Deng Xiaoping summarized the pragmatic vision behind China’s opening up and economic reforms starting in 1978, which unleashed an unprecedented era of poverty reduction, wealth creation and societal transformation in human history. 42 years later, China today accounts for over 16% of global GDP (vs. c.33% during the Qing Dynasty) and finds itself in a position of inevitable reach for global co-leadership in technological innovation, resources access, and rules-of-play setting. Being “first in & first out” in the COVID-19 pandemic, China has exhibited comparatively advantageous resiliency as its societal, fiscal and monetary safety cushions have provided effective tools to absorb the shock and to resume a growth trajectory underpinned by fundamental secular growth drivers. Interestingly, China was well underway to implement a slew of economic reforms to further open its economy (most notably in the financial services and technology sectors) to Western capital after signing a Phase-I trade agreement with the US in January this year. These now implemented reform policies are driving sustained growth in the banking, insurance, asset management, semiconductor, sensor and software sectors by allowing majority foreign ownership for the first time. China was in a relatively comfortable position going into the pandemic as its lead interest rate stood at 3.85%, bank reserve ratio at over 12.5%, corporate tax rate at 25%. It had nearly zero sovereign national debt, a USD reserve of over $3 trillion and a plethora of reforms needed in virtually all sectors. As the pandemic caused sudden shocks in China and around the world, China swiftly mobilized a synchronized and targeted financial and policy response package. Coupled with a short but strict nationwide lock-down, the country finds itself today in a position of being the global front runner in economic recovery with a strong tailwind from various policy reforms implemented during 1H2020, providing sustainable growth drivers for possibly many years to come. 6 INVESTCORP INVESTMENT INSIGHTS CHINA’S ECONOMY IS RECOVERING TO PRE-COVID-19 LEVELS WITH MEANINGFUL GROWTH IN SUPPLY & DEMAND Growth in Gross Domestic Product (GDP) Figures indexed to Q1 2019 1 1 1 China’s GDP returned to growth and 11 recovered to pre-COVID-19 levels in just one uarter China 11 World 1 E D E 1 A E 9 9 85% 1 Q2 Q3 Q4 1 Q2 Q3 Q4 1 Q2 Q3 Q4 2019 2020 2021 China Retail Consumption Indexed to Q1 2019 1 1 11 1 9 9 80% 70% 1 Q2 Q3 Q4 1 Q2 2019 2020 THE RISING POST COVID-19 OPPORTUNITIES IN CHINA AND SOUTHEAST ASIA 7 China Industrial Production Indexed to Q1 2019 1 1 11 11 1 9 80% 70% 1 Q2 Q3 Q4 1 Q2 2019 2020 Source: IMF World Economic Outlook as of June 2020; National Bureau of Statistics of China.