Recap of Baird Capital’s 2012 China Immersion Trip

In October, Baird Capital led a group of investors and other VIPs from around the world on an intensive tour of China. They visited four key cities in six days, with the objective of illuminating the opportunities and obstacles in the world’s second largest economy.

Following is a brief recap of the daily itinerary, given context by unfiltered personal observations that were sent back from each location in real time.

Day 1: Beijing

The welcome dinner in the nation’s capital featured guest speaker Nina Xiang, a veteran financial journalist. Her top-rated China Money Podcast invites China-focused fund managers, economists, analysts and other prominent guests to discuss the challenges and opportunities of investing in China.

Day 2: Beijing

“Leading edu services company said 50% of tuition is paid through credit. 3 yrs ago this was zero. Chinese consumer loading debt. #BairdChina”
 
“Costs $1 million USD in Hong Kong to hold place at international school. Payment doesn’t confirm acceptance into school. #BairdChina”

Attendees received an economic overview with breakfast from guest speaker Xingdong Chen, Chief Economist of BNP Paribas Securities (Asia) Ltd. before visiting English First – the largest Chinese operating unit of Education First, the world’s largest private education company and market-leader in language training services. With communication being one of the inherent barriers to doing business in China, English First has become the country’s leading language training brand, with more than 70,000 young professional students and 200 schools, including 40 urban training centers across Beijing, Shanghai, Guangzhou, Shenzhen, Hangzhou and Tianjin.

The education theme continued over lunch as attendees met with former EF China President Peter Winn and Jack Hsu of the Ivy Group, which invests in and manages leading preschools and kindergartens.

The afternoon took a cultural turn with a visit to China Fine Art Partners, a private equity firm that acquires, researches, publishes, exhibits and repatriates Chinese fine art. Attendees met one of founders of the firm and discussed the history of the Chinese art market. Despite the financial crisis, prices of museum-quality Chinese paintings have risen over the past ten years at a CAGR of 24%. A number of factors have driven this growth, including rapidly growing demand from a Chinese population with more money to spend and a growing interest in collecting art combined with a quickly shrinking supply as Chinese collectors and museums remove pieces from circulation.

Day 3: Changzhou/Yangzhong

“Government is like a corporate structure. Local governments are divisional presidents; listen to CEO but have own power structures. #BairdChina”
 
Changzhou’s Wanda Mall = avg customer makes $12K/yr. Number of US brands w/ stores. Wanda rep: plan on building 110 in #China. #BairdChina”
 
“Changzhou’s Wanda Mall = $150M revenue in yr 1 w/ 95% of stores profitable. This is the 1st major mall in city of 4.5M people. #BairdChina”
 
“Consumers are searching for the experience. Not just interested in the brand. #BairdChina”

The day began with a visit to Jiangsu Xinghe Group Co. Ltd., a privately owned company in the China Growth Equity portfolio that produces instrumentation valves, tube fittings and plastic pipes. The company is a leading instrumentation valve player in China and one of the few local valve companies qualified to supply the nuclear power industry.

his was followed by a trip to an Industrial Park in Yangzhong, a county-level city administered by Zhenjiang in Jiangsu Province and lunch with the mayor.

The last stop of the day was Changzhou Xinbei Wanda Plaza, which includes a large commercial center, a five-star hotel, an outdoor commercial pedestrian street, a well-furnished apartment complex and SOHO. It has become the new landmark of Changzhou city and introduced residents to a number of top Chinese and foreign brands, including Wal-Mart, Gome, Starbucks, ZARA, Marks & Spencer, SEPHORA, SaSa and Bifengtang.

Day 4: Shanghai

“Three sectors in China to keep an eye on over the next five years: Food & Beverage, Education and Travel. #BairdChina”

Attendees had breakfast with the local American Chamber of Commerce. Known as the “Voice of American Business” in China, AmCham Shanghai was founded in 1915 and is the largest, fastest-growing American Chamber in the Asia Pacific region. As a nonprofit, nonpartisan business organization, AmCham Shanghai is committed to the principals of free trade, open markets, private enterprise and the unrestricted flow of information.

This was followed by a meeting with Forbes and Business Week columnist Shaun Rein.

Lunch was with the head of the New York Times Shanghai Bureau, who discussed the challenges of covering the government and business sector in a communist country.

There was a reception at the Association of Corporate Growth, a global organization with 58 chapters and more than 14,000 members. Doing business is at the heart of the ACG membership experience. Chapters in the United States, Canada, Europe and Asia bring dealmakers together to help them achieve their business and professional goals. The featured speaker at this event was Kathleen Ng of Asia Private Equity Research Ltd, who presented data on the private equity returns delivered by firms investing in China versus other Asia markets.

Day 5: Shanghai

“Saving rate of young Chinese is effectively zero. They are incredibly optimistic and higher spenders than Americans. #BairdChina”
 
“Six words to live by in #China: due diligence, due diligence, due diligence.”

The day began with an overview of the Healthcare Industry in China featuring Helen Chen of L.E.K. Consulting and Dr. Huang, Chairman of Kindstar Diagnostics – a portfolio company of Growth Private Equity and the leading specialty clinical testing service provider in China.

The growth of the healthcare product and service industry in China is beginning to emerge. 54% of Chinese living in urban areas and 79% living in rural areas are currently not covered by any medical insurance. Since 2005, China has been undertaking a massive effort to reform its healthcare system to make it more affordable and to make its citizens healthier. One major goal is to provide universal health insurance, particularly for the rural poor but also with the savings habits of the emerging middle class in mind. The government is making a significant investment in the healthcare sector, which should create many opportunities for investors in the industry.

The presentation was followed by a visit to Shanghai Renji Hospital, which is affiliated with Shanghai Jiao Tong University School of Medicine. It was the first Western hospital in Shanghai and the second in China.

Lunch featured a due diligence roundtable with representatives from New Pacific Consulting, McDermott Will & Emery China and Ernst & Young China, who discussed the laws, customs and regulations that shape the way business is done in China.

Day 6: Hong Kong

“Last two decades in China about sourcing, next two decades about selling into China. #BairdChina”

The developing shift in China’s economy from a manufacturing exporter to a consumer importer has implications for the shipping industry, which is why attendees toured the Hong Kong Port Authority. International Terminals Limited is one of several key container port operators in the Port of Hong Kong and is owned by Hutchison Port Holdings, the largest port operator in the world.

The final, formal presentation on the trip came during a Lunch Meeting With Bernard Chan, President of Asia Financial Group, who drew from an illustrious career in business, politics and social services while sharing his views on the past, present and future of Hong Kong and its role as an investment gateway to China.

A Trusted Investment Partner in China

Baird has private equity partners and operating professionals on three continents, including our Asia investment and operations team. Located in Shanghai, China, these professionals have proven operating experience in Asia as well as a broad network of government and industry relationships. They work exclusively with our portfolio companies to develop and implement strategies to drive value in these investments, including:

  • Building global supply chains
  • Developing sourcing relationships
  • Establishing operations
  • Market entry strategies and local distribution

Baird Capital makes venture capital, growth equity and buyout investments in lower-middle-market companies in the Business Services, Healthcare/Life Sciences, and Industrial and Consumer Products sectors. Since inception, we have invested in over 260 companies globally.