[JD Says] Equity Investment Contributes to Technological Innovation and Facilitates “Intelligent Man
2017-03-07
On March 5, the Fifth Session of the 12th National People’s Congress of the People’s Republic of China was held in Beijing. Premier Li Keqiang delivered the Report on the Work of the Government (hereinafter referred to as “the Report”).
The Report plans for key tasks in 2017, with the work of “transforming and upgrading the real economy through innovation” included.
According to the Report, the real economy has always been the foundation of China’s development, and the task we now face is to speed up its transformation and upgrading. We must do more to implement the strategy of innovation-driven development, upgrade the structure of the real economy, and constantly improve its performance, benefits, and competitiveness.
Moreover, the Report requires that we must strengthen our capability of technological innovations, accelerate the development of emerging industries, and fully implement the development plan for strategic emerging industries. We will accelerate R&D on and commercialization of new materials, artificial intelligence, integrated circuits, and other technologies, and develop industrial clusters in these fields. Meanwhile, we will endeavor to transform and upgrade traditional industries. We must intensify efforts to implement the “Made in China 2025” initiative, promote accelerated application of big data, cloud computing, and the Internet of Things, and use new technologies, new forms of business, and new models to bring about transformation in the production, management, and marketing models of traditional industries.
In 2017, with intellectual manufacturing development as our focus in promoting traditional manufacturing, we will make a big push to develop advanced manufacturing, improve policies designed to turn China into a manufacturer of quality, and adopt a variety of supportive measures for technological upgrading, thus moving toward mid- and high-end manufacturing and re-energizing traditional industries.
Serve transformation of manufacturing industry and support “Intelligent Manufacturing in China”
The manufacturing of high-end equipment is seated on the throne of the modern manufacturing industry. In recent years, motivated by the supply-side structural reform and under the guidance of the “Made in China 2025” initiative, the trend of an extensive integration of manufacturing and information industry is becoming even more obvious, with several segments expected to embrace significant development opportunities.
Advanced manufacturing has always been an important investment target for JD Capital. Up to now, it has made a total investment of nearly six billion yuan in 65 enterprises. 11 of them went public and have raised more than 13 billion yuan after that. Several investment targets, such as iDear Hanyu Electrical JSC Ltd., Cathay High-Speed Railway Technology Co., Ltd., HaoZhi Electromechanical Co., Ltd., and Fengxing Wear-resistant Materials Co., Ltd., have achieved an annualized return of more than 40%.
As new materials also play an important role in the integrated transformation and upgrading of manufacturing, material industry has also been a focus of JD Capital in making investment. In 2012, JD Capital took a stake in Anda Energy Technology Co., Ltd. (Stock Code: 830809), which has been providing cathode materials for Li-ion battery for BYD, the leading maker of new-energy cars in China. Through equity investment, JD Capital helped Anda reform its main business, transform from a phosphate chemical company to a manufacturer of cathode materials for Li-ion battery, and thus make its layout in the domestic electric automobile market.
At present, JD Capital is still in touch with domestic and overseas enterprises specializing in new materials such as composite material, 3D printing materials, OLED, Li-ion materials, and graphene, so as to be well prepared for the next industrial outbreak.
Currently, in terms of business models, it has been a prevailing trend for China’s manufacturing industry to develop by transforming traditional production methods with such advanced technologies as robotics and Internet and acquiring core technologies worldwide by virtue of advantages in the domestic market and the dynamic capital market. Technologically, industrial robots and their key parts, and the intellectual integrated system of production are prerequisites for intellectual manufacturing; meanwhile, UAVs, service robots and smart appliances will be of great help in people’s life and work. During the process, both local enterprises in seek of transformation and innovation, and private equity firms concentrating on industrial investments serve as the major driving forces.
Draw on capital advantages and promote technological innovation
Technological reforms promote the evolution of industries, which will then bring about supply upgrade, a forward loop of economic development. Throughout the history of human society, all major breakthroughs stem from supply-side upgrade led by technological reforms. Predictably, the constant progress made in technological innovation will result in the further improvement of supply in human society.
In recent years, private equity, as the closest financial capital to real economy, has unearthed a lot of Chinese enterprises boasting huge growth potential and innovation capabilities, and promoted the reform of various technologies, business models and industrial landscape. In fact, as international experiences indicate, equity firms have played an essential part in the development of real economy in various countries since the latter part of the last century. Private equity is a typical financial capital which earns profits through increases in the value of participatory stake before exit. More importantly, private equity firms may hold the stakes for a relatively long term. Therefore, they can, acting as strategic shareholders, participate in the operation and management of the enterprises, and help them improve efficiency and integrate resources.
As a new round of economic transformation is forging ahead, JD Capital launched the “Bellwether Plan” in 2016, and has upgraded the plan into the “Bellwether Emerging Plan” in 2017. We will, jointly with manufacturers and other enterprises engaged in real economy, seek to develop quality assets in the combined model of capital and industry, so as to improve the industrial structure and upgrade industrial supply.
In brief, in launching the “Bellwether Emerging Plan”, JD Capital will become a strategic shareholder of enterprises in various sectors which enjoy strong growth potentials and decisive advantages, by sharing equities or controlling stakes in them. We will help them achieve sustainable financing in capital market and carry out M&As. By doing so, enterprises can expand their market share and acquire bargaining power in the supply chain. Meanwhile, with the help of capital, enterprises can look to perform cross-border M&As and internationalize their operation and businesses. Alternatively, they can flexibly employ various approaches, such as the Internet, to enhance their core competitiveness.
By virtue of this plan, JD Capital aims to identify the leaders and quasi-leaders in each sector, so as to help them achieve greater growth and make them regional, national or even the world’s industrial leaders. Moreover, JD Capital will help these enterprises boost their market capitalization from one billion yuan to more than ten billion.
China is now in the mid-to-late stage of industrialization, with unprecedented changes arising in terms of development trend, structure, and driving force. In addition, overcapacity poses a serious challenge to many industries. Therefore, the overall business efficiency of capital can only be improved if leading enterprises are integrate industrial resources and optimize asset allocation. Equity firms can help enterprises in industries with surplus production capacity to restructure similar parts of businesses.
When performing growth investment, equity firms can tilt more towards new technologies, new products, and new forms of business. By increasing support for the development of enterprises in emerging industries, JD Capital can help innovation-oriented entities solve financial problems in the growth stage, and create new leaders in these industries. In 2015, JD Capital took a stake in Yantai Towin Intelligent Technology Co., Ltd. Yantai Towin used to mainly work on the processing of precision bearing products, and moved into the sector of intelligent manufacturing after its cooperation with Ludong University since 2009. After years of determined and hard efforts, Yantai Towin has launched a series of industrial robotics products with their own intellectual property rights. With capital support, its products are now used in various fields, such as tire, household appliances, clothing, and military industry.
The statistics suggest that the sales volume of China’s robots is growing in excess of 40%, and the market of robotic applications is worth more than 40 billion yuan. The rising of labor cost appears to be rigid, which makes most enterprises prefer robots instead of human workers. In this way, quickly adapted to the harsh work environment, robots can improve product quality and production efficiency. With a special fund for robotics industry established, JD Capital is committed to exploring investment opportunities in such segments as robotics applications, innovation of key parts, and machine vision.