Renchuan Chen
China’s economy, especially the consumer internet segment, is slowing down, prompting investors to look for opportunities in Southeast Asia and India, according to Renchuan Chen, Vice President of TH Capital, a boutique investment firm which also makes startup investments occasionally.
“The whole Chinese economy, especially the consumer internet segment, is sort of slowing down. While the mobile penetration rate in the country is relatively high, it has started to drop when compared to the fast growth in emerging markets. We can hardly find many great opportunities in the consumer internet segment in China,” he said. “Not many investors are looking to back consumer internet startups anymore. They are now shifting their attention to industrial internet.”
The logic is quite reasonable, according to Chen. There are fewer opportunities in the consumer segment because of the dividend of the population. Plus, the overall industrial internet segment in China is under-developed. It is just five to 10 per cent, compared with 50 per cent in the US.
“If you look at the industrial internet segment, it’s much more underdeveloped compared to the consumer Internet. We are most developed or one of the most developed consumer internet economies in terms of e-commerce penetration, third-party mobile pay penetration and online population penetration. But we’re one of the least developed industrial internet economies,” he elaborated.
While similar trends are also happening in Southeast Asia and India, their TMT (tech, media and telecom) infrastructure is still in the early stages of development, which offers massive opportunities.
“If you look at Indonesia and Vietnam, these two countries have registered dramatic improvement in the past three to four years. The overall underlying GDP or economic development in these countries are growing fast, but there is still room for improvement. This presents great opportunities to investors,” he remarked.
Talking about the overall PE/VC investments in China, he said in 2018, it was US$200 billion, but this year, it dropped significantly to less than US$100 billion. True that the overall PE/VC investments were relatively lower in emerging markets (Southeast Asia, India, South America, East Europe, the Middle East and Africa) also; in 2018, the total volume was only one-seventh or one-fifth of China. However, because China has dropped to half, those markets are growing, he said.
TH Capital, which expanded to India and Southeast Asia in late 2018, is bullish about these fast-growing markets. In his view, Southeast Asia is a group of developing countries with high-density population and social structure like China. Their TMT is growing fast.
He rejected the notion that there is a lack of supply in terms of good startups for investors to invest in India. According to him, the absolute volume for the entrepreneurs in India is perhaps less, compared with China. But because of the stable economic growth, the supply of good entrepreneurs is booming. It’s developing in much faster speed as compared to China and even compared to Southeast Asia, he said.
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“When we came to India for the first time early this year, we talked to a data-driven early-stage investor. They had a database of about 1,000 to 2,000 SaaS entrepreneurs back then,” he noted. “When we came to India after six to seven months again, the total number had risen to 10,000 to 12,000. So it is booming and at a swift pace, supported by the TMT infrastructure. A lot of diversified investors are looking into this market right now. Given China’s stagnant consumer internet segment, there is a lack in China, not India,” according to Chen.
Since its launch in 2012, TH Capital has served 40-plus unicorns in China and helped 100-plus startups to raise more than US$15 billion in the primary market.
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