http://www.youtube.com/watch?v=6wlELp1QMI8

In this episode of China Money Podcast, guest Chenggang Jerry Wu, principal investment officer of IFC's (International Finance Corporation) climate change fund, discusses IFC's commitment to Chinese private equity funds in the climate change sector, the new opportunities arising from China's pollution treatment efforts, and what he looks for in a first-time fund manager.

Listen to the full interview in the audio podcast, watch an abbreviated video version, or read an excerpt.

Q: Can you first give us a brief introduction of IFC's climate change fund and your role in managing the fund?

A: IFC is the largest multilateral organization focused on emerging markets' private sectors. We invest more than US$10 billion a year into private sectors across emerging markets. We started investing in private equity funds in 2000, and have invested in more than 130 funds in emerging markets. I believe IFC invested in roughly 10% of all the private equity funds ever existed in emerging markets. We currently have an active portfolio of more than US$2 billion.

Clean tech and energy efficiency is one of our focuses in our private equity investments. IFC started investing in these areas in 2007. Up until now, we have invested in 17 funds in total, and on average we invest in three to four funds per year. The main focus includes traditional clean tech, renewable energy (both upstream manufacturing and downstream power generation), and all sorts of resource efficiency and environmental services (such as recycling, water efficiency, sustainable agriculture and sustainable forestry).

IFC has a subsidiary called IFC Asset Management Co., which is a fund manager that leverages IFC's own expertise and resources with the capacity to raise funds from third party investors. IFC Asset Management Co. set up a Fund of Funds (officially called the Climate Catalyst Fund), which just had its first closing of US$500 million, to invest in climate change funds. IFC put US$75 million into it, and it will do further fundraising in the future.

I'm not directly managing that FoF. I started in the current position in 2011, and my role is to provide pipeline and resources of the IFC to the FoF, so that they can decide whether to co-invest with IFC or not. I also manage IFC's own investments in the climate change area.

Q: On IFC's website, it describes the IFC Climate Catalyst Fund as part of IFC's strategic focus on addressing climate change across emerging markets. Specially in China, what investments have you made?

A: Given our investment focus, you can probably guess that China is the largest focus of the fund's portfolio. Up until now, roughly 30% to 40% of the fund's portfolio is focused on China. Our focus includes environmental services, waste recycling, renewable energy and energy efficiency. We have also invested in funds investing in water efficiency, water recycling and water treatment.

As you may know, the clean tech and renewable energy sector in China has gone through tremendous adjustments during the past two years. The issue of overcapacity, the European debt crisis and changes in subsidy schemes in Europe have negatively impacted China's export-oriented clean tech sector, especially the solar sector, and to a less extent, the wind sector. A large number of Chinese companies will not survive. But I believe we are at the end of the adjustment, and in fact, it may be a good time to get into the sector again.

Moreover, given the recent headlines about China's (grave) pollution situation, we see this area as having great potential. The new leadership will take pollution treatment seriously.

Q: Do you invest only in private equity funds, or individual projects, or both?

A: IFC does both. For myself, I invest only in private equity funds. We prefer to avoid venture capital funds because intellectual property rights are often at the risk of compromise in emerging markets.

In this episode of China Money Podcast, guest Sam Gupta, CEO of Grand Trunk Capital, explains why he is bullish on the Indian economy and markets, why Indian banks will consolidate in the next two years, and the reason why he prefers to work with the management team.

Listen to the full interview in the audio podcast, watch an abbreviated video version, or read an excerpt.

Q: First give us a brief introduction of Grand Trunk Capital?

A: Grand Trunk Capital is a private investment partnership, (managing money) for institutions and family offices. We focus on special investments in India. Previously I managed a fairly large fund in partnership with Soros Management called QIF Management. QIF Management was at points in time the largest overseas investment fund in India.

The strategy (of Grand Trunk Capital) is to focus on five or ten best investment ideas across sectors and geographies within the Indian markets. We are not a trading fund. We tend to take longer term and focused positions in Indian companies where we think there is sufficient mispricing and where we see sufficient upside down the road. Our strategy is very search based, value driven and focused on catalysts.

Q: Can you talk about the performance of the (Grand Trunk Capital) fund?

A: The fund was up 42% in 2012. We had a very bullish view on the banking system in India, and started buying some Indian banks towards the middle of the summer. That worked really well for us. We also took opportunities in the media space because of the catalyst of regulatory changes. One of our largest investments, (United Spirits), was bought out by Diageo, the world's largest liquor maker, at a significant premium. That's an investment we got into in early 2012.

Q: Now you are raising more capital for Grand Trunk Capital. What do you think makes India more attractive?

A: What's interesting about India vis-à-vis Russia, Brazil and China is that India is primarily a domestic market. It has a young population. Most of the economic activities are about feeding and satisfying their needs. So when the world slows down, India is impacted much less than other emerging markets.

India also has a very diversified economy. Almost 50% of the Indian economy is services based. So it is a bit of a paradox that the Indian economy is both a more diversified economy and also a more basic economy.

Q: Normally, how big a stake do you take when investing in a stock?

A: We try to take less than 10% of a company, but we've taken more than that in some companies in the past.

Q: Are your investments passive, or do you try to influence the management of the company?

A: Once we take a minority position, we try to stand on the same side with the management. In India, management team tends to control half of any given company. So their well-being and wealth is tied up with the price of the stock. The legal system is also stacked in favor of the management, so as an investor, you can only do so much.

But we feel comfortable with most management teams in Indian companies, at least those managers we like. They generally are appreciative if we give them good advice.

Q: You also offer special situation investment opportunities to investors. Tell us more on that?

A: Sometimes we work with management in unlocking the value of their company. It might involve halving off a division, making an investment in a new project. Of course, we invest along with the management, which is probably the best price you can get to invest. So we give co-investment opportunities in these special deals for our core fund investors.

Q: Can you give us an example of a recent special situation opportunity that you have looked at?

A: We launched a fund in late 2012 to take arbitrage opportunities among Indian banks. Some Indian banks are trading at a massive discount to their larger peers. Some of them are good acquisition targets in the next two years.

http://www.youtube.com/watch?v=r56ZNhS54z8

In this episode of China Money Podcast, guest Prof. Chen Zhiwu, professor of finance at Yale University, discusses why he is an overall pessimist when it comes to China's long-term economic prospects, why he is worried about the economic spillover from China and Japan's dispute over Diaoyu Island for 2013, and why he thinks inflation will run rampant in China for the next ten years.

Listen to the full interview in the audio podcast, watch an abbreviated video version, or read an excerpt.

Q: Economists are generally optimistic about China's growth this year -- you included. What are some potential roadblocks that could surprise us all on the down side?

A: I think whatever domestic economic challenges there may be in 2013, the Chinese government will be able to use policy tools, or if necessary, accelerate infrastructure spending, to fight them off on a temporary basis. But whatever they do for the short-term benefit can create structural problems that will be difficult to overcome down the road.

For 2013, the geopolitical risk may surprise people, especially given the noise from Japan and China over the disputed islands. Such hot button geopolitical factors tend to be underestimated by financial market participants. So I'm personally concerned for its impact on the economy.

Q: Looking at longer term prospects, the idea of "New Normal," meaning an extended period of lower growth and higher unemployment, has been accepted in the U.S. Do you see that China will go into a "New Normal" of its own kind in the next ten years?

A: I think it's highly unlikely for there to be a smooth transition from the "Old Normal" for China, meaning high growth in excess of 8% or 9% a year, to a lower growth "New Normal." For China to keep growing at 6% or 7% a year for another 20 years, major reforms have to take place. But I don't think those reforms are realistic unless some crises take place to make China's entrenched interest groups to sacrifice what they have.

Q: What kind of crises do you envision?

A: First, an economic crisis. As long as temporary growth can be sustained, the government will continue such a path, even at the expense of long-term structural balances. When growth slows down eventually, corporate loans and local government loans will become a problem for the banks. But the banks' problems won't become a major national crisis as long as the fiscal accounts of the central and local governments are healthy. That's why it will take two or three years for the fiscal crisis to really surface, causing social disturbances and unemployment.

If the real estate market is not freed up more, local governments will face more fiscal challenges. But I don't think this year will be the year local governments will collapse. They can still play along for another one or two years before a crisis will emerge.

Q: From a foreign investor's perspective, where do you see the most attractive investment opportunities in terms of asset class and industries? The H-share market? Or is it time for bottom fishing the A-share market?

A: For the last 20 to 30 years, the best investment strategy for foreign investors has been to invest in foreign multinational companies that receive a large fraction of their revenue and profits from China. If you look at those companies' stocks, compared to the H-shares or the A-shares stocks, they have done much better. This strategy will continue to work going forward.

If you really have to invest in Chinese stocks, the A-share market will probably do better than overseas listed Chinese stocks. Prices in the A-share market has been depressed for a few years, even with an 8% to 10% rebound during the past months, valuations are still low.

Q: Foreign investors can only invest in the A-share market through the QFII (Qualified Foreign Institutional Investor) program, which has been significantly expanded lately and will continue to open up more.

http://www.youtube.com/watch?v=BxOpT-xrD_k

In this episode of China Money Podcast, guest Jenny Gao, managing partner of Mandarin Capital, talks about how her fund helped an Italian company to penetrate the Chinese market, and why she is betting on the future of China's Dagong Global Credit Rating's future in Europe.

Listen to the full interview in the audio podcast, watch an abbreviated video version, or read an excerpt.

Q: You are only the second female guest on our program's one-and-half-year history. So let's start with your personal career. You initially worked at one of China's three policy banks, the Export and Import Bank of China. How did you get into the private equity industry?

A: I worked at the Export and Import Bank of China (Exim Bank) ever since the beginning of its operation in 1994. The Bank is very much involved in the business of providing loans to Chinese companies to invest abroad, as well as undertaking big construction contracts and exporting machinery goods.

During that time, I accumulated lots of networks among big Chinese State-Owned Enterprises and big Chinese private companies that were engaged in China's "Go Global" businesses.

When Mandarin Capital Partners was set up in 2007, my managing partner, Alberto Forchielli, asked Exim Bank to provide the best support in terms of talent to support the fund's business in China. I was picked by the Exim Bank's management to work at Mandarin, and that's how I started doing private equity.

Q: In way of background, Exim Bank is one of three major investors in Mandarin's first fund. The other two being China Development Bank and the second largest Italian bank, Intesa San Paolo?

A: Yes, they were the three cornerstone investors and each provided EURO 75 million in the fund. At the end of 2007, we raised EURO 328 million in total.

Q: From my previous conversation with Alberto Forchielli, Mandarin Capital's strategy, as I understand it, is to invest in China-Europe cross border deals, helping Chinese companies to expand in Europe and European companies to explore the Chinese markets?

A: Exactly. To be more specific, we invest in Chinese companies, and then help them to expand in Europe through mergers and acquisitions, or finding strategic partners. Vice versa, we invest in European companies, and help them expand in China through M&A, building a joint venture or investing in green field investments. We see strong synergies between such team-up.

Q: Can you give us a specific example to illustrate your strategy?

A: We invested in an Italian company called Dedalus. Its main business is to make medical software for hospitals and other healthcare related institutions. One of the major products is the platform software that can link hospitals, drug stores, government agencies and insurance companies together, so that all of these institutions can efficiently exchange data and information to improve efficiency of the whole healthcare system. The company has already successfully implemented four platform software systems in Italy.

In China, this kind of software started only two years ago. This market is in a very early stage. China just began implementing similar software for medical records. So Dedalus' technology is very relevant to the Chinese market. But Dedalus is a medium sized company, and couldn't navigate the Chinese market by itself. After we became a shareholder, we helped them to look at many potential acquisition targets in China. We probably looked at more than 30 medical software companies, and finally we decided to choose Sanwei Technology, a company located at a third tier city in Northern China. The city is an ideal location because it was launching one of the biggest projects in platform software in China. Sanwei became Detalus' China platform to develop the software in Chinese and also to set up a model project in the city.

Q: Financially, what kind of targets have Datalus been able to achieve through al...

In this episode of China Money Podcast, guest André Loesekrug‐Pietri, founder of A Capital, explains why his fund's China-Europe cross-border strategy will thrive even in the current world economic malaise, how did he become attracted to the Chinese markets, and why his new fund was able to secure two star institutional investors.

Listen to the full interview in the audio podcast, watch an abbreviated video version, or read an excerpt.

Q: First, a brief introduction of A Capital?

A: We are a European growth capital fund focused on investing in European companies that have strong growth potentials in China. Once we make the decision to invest in (a European company), we bring a Chinese strategic co-investor that has the resources and expertise to make this European company succeed in China.

Q: You have both a Euro fund and a RMB fund. The Euro fund has a target size of €250 million. How much have you raised so far?

A: We have raised a significant amount of that. Our fund is relatively new, just a bit over a year old and we've done two deals so far. Several months ago, we had our first closing with two major investors, one from China and the other one from Europe.

Q: These are the Belgian Federal Holdings and China Investment Corporations?

A: Yes, both of them invested in our Luxemburg fund. Our fund is actually a regulated fund, even thought only funds with over €500 million are required to be regulated in Europe. We decided to be regulated by the Luxemburg Financial Authority because of the quality of our investors.

We have a second, RMB fund that we have set up in cooperation with the Beijing Municipal government, specifically, Beijing's Office of Financial Works. The fund is unique in that it is allowed to raise money in RMB in China and invest overseas. The two funds invest in complete parallel terms. The RMB fund is a tool for us to allow Chinese LPs to invest overseas through our vehicle.

Q: There are several funds with similar strategy to yours. Mandarin Capital has a China-Italy/China-Europe focus, whose founder was featured on our program previously; Cathy Capital has a China-France focus. What are some similarities and differences between you and them?

A: First, this is a new strategy. It's always good to have someone else with whom you can benchmark yourself. I'm both German and French. There are around 120 private equity funds in Germany, and maybe around 140 funds in France. If there are two or three funds doing cross-border deals, it's only healthy.

Secondly, our focus is the whole European continent. Our strategy is focused on one theme: urbanization, which is a trend that will continue to be very strong in the next twenty to thirty years in China. We invest in three sub-areas: 1, Retail and consumer brands. Our two done deals in Club Méditerranée and Bang & Olufsen are in this category. 2, Transportation and logistics. 3, Quality of life including food safety, environmental technology and healthcare.

Europe has the expertise and resources in all these areas to offer. Germany has automotive expertise. The Nordic countries and France have water treatment technologies. In France and Italy, there are solid consumer brands.

Lastly, once we have taken the decision to invest, we bring along a Chinese co-investor who has the industrial skills needed to create true value. We then work hard to make sure these synergies are realized during the lifetime of the investment.

Q: With Europe saddled with the Euro crisis and China's economy slowing, how will your ability to successfully implement your strategy be affected?

A: Our strategy is to invest in European companies that have strong potential to grow in China. It was a niche strategy in Europe until two or three years ago, because until then companies were able to grow well within Europe. Now, with poor growth prospective in Europe, to be successful in China is no longer a nice-to-have, but an absolute obligation.

In this episode of China Money Podcast, guest Yukon Huang, senior associate at Washington D.C.-based Carnegie Endowment and former World Bank China director, shares his observations on China's next leadership, the possibilities of any bold reforms and the Chinese economy's long-term trend in the coming decade.

Listen to the full interview in the audio podcast, watch the shortened video version or read an excerpt.

Q: China's economy has been growing at an average of over 10% for the past twenty years. No economy can grow that fast forever. Third quarter GDP was out at 7.4%. Do you think the turning point has finally arrived?

A: Over twenty years, China has actually never grown lower than 7.8% for the annual basis. So it's very likely that, of course, this year's growth is likely to be lower than anything that has been experienced over the last two decades. But over the last month, there are some positive signs. Investment seems to be responding, or picking up. Retail sales is a little bit better. The export picture improved a little bit. So, some would guess, and I think it's probably true, that some time over the next month or two, the economy will bottom out, and will actually turn upwards.

But even a rebound will probably not lead to GDP growth next year much higher than 8%, because the global environment is still lackluster.

Special thanks to China World Summit Wing for providing a great venue for this interview

 

Q: Does that mean China is going to enter a phase where lower economic growth is the norm?

A: China's economy is a maturing economy, a middle-income economy. It's going to move to upper middle-income (economy). Ten or fifteen years from now, China will enter what you would call high-income (economy). You don't find high-income economies growing at 10%, or even 8%. A 5% or 6% is actually a very strong performance.

Why should China want to grow at a higher rate? Ten years ago, China wanted to grow at 9% or 10% because it had a major employment concern. But China today is quite different. It's an aging society. The labor force is already shrinking. So China doesn't need to grow very fast to generate jobs, but to create better-paying jobs with higher value. So now, it is the quality of the growth that matters, not the quantity.

Q: Do you see any chance that China might be growing at a rate much slower than 7%?

A: It's possible. Growth is determined by consumption and investment. Consumption has been growing at about 8% to 8.5% a year. Combined with the government, it accounts for about half of the economy. Investment grew double digits in the past, but has slowed down. It could only grow by 5% or 6% in the future. Suppose it grows at 4%, for example, and consumption grows at 8%, essentially this economy will be growing at 6%, which is too low.

So, the real trick is to continue to grow at 7% or 8% for another ten years. And then, I think we will see China's economic growth moving closer to 6%. But how do you grow at 7% or 8% for another ten years? The key is to increase productivity. China has been trying to improve productivity by innovation and technology. But these are generational changes, and can't occur in five or ten years. A more immediate method is to allow people greater mobility in moving around, or liberalize the Hukou system.

Q: Next month, China will have a once-in-a-decade leadership transition. What are some key policy initiatives the new government should take on?

A: The three choices that I would say are: 1, what is the role of the state in comparison of the role of the private sector; 2, what is the proper balance between banking and the fiscal budget; 3, the speed and pattern of urbanization in China.

For the role of the state and the private sector, the question is not which one should dominate. The key is to create a fair playing field so that the two can compete. For the second issue, the national budget is too weak.

In this episode of China Money Podcast, guest Thomas Hugger, CFO of Leopard Capital, a private equity firm focused on investing in Asian frontier markets, discusses the successes and failures of his firm's investments in Cambodia, the impact on frontier markets from a slowing Chinese economy, and why frontier markets offer better risk-return profiles than emerging markets.

Listen to the full interview in the audio podcast, watch the shortened video version or read an excerpt.

Q: First give us a brief introduction of Leopard Capital?

A: Leopard Capital was founded in 2008. Our general goal is to make private equity investments in frontier markets. We've raised two funds so far. In March 2008, we raised our first private equity fund to invest in Cambodia. Another fund was raised to invest in Haiti. We are hoping to launch two additional funds to invest in Bangladesh and Bhutan this year.

We've met hundreds of potential institutional investors or high-net-worth individuals. They are extremely interested in Asian frontier markets, but they are concerned to invest their money for ten years in a private equity fund in a single country like Cambodia. They want more diversification and more liquidity. So earlier this year, we launched a fund to invest in listed equities in Asian frontier markets, including Cambodia, Bangladesh, Laos, Vietnam, Sri Lanka, Pakistan, Mongolia, Papua New Guinea, and Myanmar. This is our Leopard Asia Frontier Fund, which I manage at the moment.

Q: How much capital do you have in these funds?

A: The Cambodia fund has US$34 million. The Haiti fund has US$20 million. For Leopard Asia Frontier Fund, we start with money from family and friends, and we are going on road shows to raise more money. At the moment, we are at US$2 million.

Q: There is certainly lots of interest in frontier markets now. When you talk to potential investors, what's the biggest concern that they have?

A: Their biggest concern is liquidity and execution of investments. Their question is: Are these countries ready for private equity investments?

We try to tell them that it's possible to make private equity investments in these markets. For our Cambodia fund, we are in our fourth year. We are fully invested and had two exits. So we are convinced that it's possible.

Q: Can you give us more background on the two exits you achieved in Cambodia?

A: One is a pre-IPO deal in Laos (Cambodia funds normally invest in the Mekong region). We invested a couple of months before an electricity stock was listed. The other is a structured deal in a telecommunications company in Cambodia, which is supposed to run for two years, but we exited at one year and three months.

We source these deals through our own relationships. We have about 20 shareholders in Leopard Capital. Our chairman is Marc Faber. So we get a lot of referrals.

Q: For the Cambodia investment, how did you exit, exactly?

A: In this particular case, the deal was financed by a Chinese bank. There are a lot of interests from the Chinese on Cambodia's telecommunications sector. In general, when we invest, we don't assume we can exit through an IPO. We will normally do a trade sale.

Q: What kind of deal volume is there every year in these markets? How does valuation compare with other markets like China and India?

A: Don't forget our fund is only US$34 million. We want to have a diversified portfolio, not only by industries, but also by investment styles. The average deal size is anywhere from US$1 million to US$5 million. And it's 100% our own equity.

It's difficult to compare valuations because some of our investments in Cambodia are bordering venture capital. Some are green field projects (meaning you start a business on a green field where nothing is there). We did one mineral water project and one beer brewery called Kingdom Beer in Cambodia.

We also invested in a very small microfinance company when everyone was chasing Indian microfi...

In this episode of China Money Podcast, guest David Pierce, CEO of Squadron Capital, a fund-of-funds manager with over US$1 billion-under-management, talks about China's private equity industry in a slowing economy, lessons he learned from investments that have gone wrong, and why his firm doesn't want to become a QFLP (Qualified Foreign Limited Partner) yet.

Listen to the full interview in the audio podcast, watch the shortened video version or read an excerpt.

Q: First give us a brief intro of Squadron Capital?

A: We are a boutique fund-of-funds manager, focused on private equity funds principally in the Asia Pacific region. We also have a separate account program that includes the private equity portfolio of our sponsor, The Research Investment Group, which is the family investment office of Mr. Robert Miller, a co-founder of the Duty Free Shoppers.

Q: What sets you apart from other fund-of-funds in the region?

A: I think it's mostly our longevity in the market. My own experience of investing in private equity in Asia goes back to 1995. Most of the FoFs here, frankly, have arrived in the last few years. So we have a history with GPs (General Managers) in the region, so they are not fearful that we are carpetbaggers who are coming in for a bull market moment. So we are in for the long haul.

Q: You have been in the industry for a long time, so where do you think the PE industry in China is right now, and where is it headed, particularly considering the slowing economy?

A: Right now, there are a lot of uncertainties in the world, with China's economy slowing and troubles in Europe and the U.S. All these make investors and companies more cautious. China's private equity industry has also gone from the go-go period into a period of more reflection. Right now, people are thinking to themselves: Let's think about (our strategies) more carefully. Let's focus on how to create value for the long-term.

Q: Can you give us some examples of the funds that you backed and you are very proud of today?

A: China's private equity market is much deeper and broader than other markets in the region, with strategies ranging from early stage investment to buyouts. So we have the luxury of choosing from different strategies.

At the later stage end, we've invested with Hony Capital for a series of funds now. We identified John Zhao and his team fairly early on before he was out raising money and became famous. Hony Capital has changed with the overall private equity ecosystem. It is focusing increasingly on the things that other private equity firms can't do, such as having in-house consulting teams, and working with portfolio companies to transform the business. So they can do state-owned enterprise restructuring and controlled buyouts.

At the other end of the spectrum (on the growth capital side), we've long been a backer of Orchid Asia. It is a fund founded by Gabriel Li. It's on their fifth fund now, primarily investing in smaller companies to provide growth capital. Their investment process involves finding the right entrepreneurs and finding a way to work with them to transform their businesses through persuasion, rather than control.

Q: Going forward, which strategy do you think will become more advantageous?

A: Eventually, controlled buyouts will become more important in China, but I think we are some years away from that. First of all, there aren't a lot of companies for sale. Good companies that are established by first-generation entrepreneurs are never really for sale. The plan for them is to become a public company. So there are still lots of room for growth capital investing to continue to dominate. But we will see a maturing and deepening of the growth capital sector.

Q: What are your thoughts on the outlook of state-owned enterprise buyouts?

A: It's a very difficult strategy to execute, but those who can execute it should have lots of opportunities.

In this episode of China Money Podcast, guest Fritz Demopoulos, founder of Queen's Road Capital, shares his thoughts on China's Internet sector and entrepreneurship. As founder of two successful Chinese Internet companies, Shawei.com and Qunar.com, Demopoulos is now hoping to capture the next big opportunity in China's Internet evolution by deploying his own capital.

Listen to the full interview in the audio podcast, watch the shortened video version or read an excerpt.

Q: Last time when we talked, it was five years ago during the early days of your last start-up Qunar.com. This time around, you just founded Queen's Road Capital. What's your strategy and targeted industry?

A: It's my personal investment vehicle that I use to invest in early stage companies. I try to focus on media and Internet companies, including consumer Internet, consumer facing models, and e-commerce related companies that are creating market places, that are thinking about how to deliver advertising better and more targeted (products and services) to consumers, as well as mobile consumer opportunities.

Q: Any examples of companies that you have invested in?

A: I'm an investor in a company called Wodache, a ride-share company. Everyone knows in the major cities of China, there are lots of traffic and it's very difficult to get a taxi. This company helps consumers to share cars through a mobile platform. It provides very strong functional value, so I'm very excited about it.

Q: You were a successful entrepreneur before. Now you are an investor. Does the change of role make you think differently when looking at a start-up?

A: Many investors are entrepreneurs and many entrepreneurs are investors. When I was an entrepreneur, I was always thinking about investing, and vice versa. So it's a constantly revolving door.

Q: For those areas that you mentioned previously as places you look at intensely for investments, what specific elements do you try to find in a start-up that can lead to success?

A: At least for me, the last thing I want to do is be where everyone else is. I always wanted to be the first within a category. You can't underestimate the value and advantage that a first-mover has. The team and concept is just a little bit down the learning curve than everyone else.

Secondly, the team has to be completely focused on what they do. We need to see that the management teams and founders have skin in the game. Have they invested their own money? Have they given up other opportunities? Have they convinced their families and friends to invest?

Thirdly, it's important that the founding teams understand their limitations. If they understand what they do well and what you are not good at, then they can simply hire the missing pieces.

In terms of technology, clearly we live in a mobile world. Very rapidly, we are seeing the rise of mobile commerce, e-commerce, real transactions happening online, not just an order entry but proper payment processing all the way up to fulfillment. It is all about being able to present great product information to consumers in innovative ways that meets their specific needs. That entire chain is undergoing a significant revolution, especially with mobile and social media elements.

Q: You are investing in early stage companies. What kind of failure rate do you expect?

A: China is different because with a small amount of capital, you can survive for a long time. You give 20 companies a couple of million dollars a piece, they are going to last for five or six years even if those models haven't been successful. I'm not sure if that's the right way to look at it. If failure means going bankrupt, not many companies go bankrupt because you can last for a long time in creative ways in China.

Q: You have been involved in the Internet sector in China for a long time. How do you make of the fact that the Chinese Internet space is so much more fragmented than in the West, where Yahoo,

In this episode of China Money Podcast, Gary Rieschel, founder of Qiming Venture Partners, shares his thoughts on the Chinese economy, the technological evolutions of the Chinese Internet sector and why he is confident that Qiming will be well within the top quartile performers among China's venture capital firms.

Founded in 2006, Qiming Venture is one of the most successful venture capital firms in China, having invested in and successfully listed companies including Jiayuan, ChinaCache and Touchmedia. Qiming recently closed its second RMB fund, raising RMB700 million in merely four months. Gary Rieschel talked to China Money Network in Shanghai.

Listen to the full-interview in the audio podcast, watch the shortened video version, or read a transcript summary.

Q: Let's start with the macro economy. It looks certain that the Chinese economy will grow at the slowest pace in more than ten years. How has your businesses been impacted?

A: The Chinese economy this year will grow slower than in the past, but I don't think that's a great surprise. I think it's a natural evolution as China starts to go to (an economic model) more of a consumption driven, more higher valued-added products in the economy. There is some hesitancy by foreign investors, so you have seen a slight drop in foreign direct investment this year. But I think this is all relatively healthy as China starts to go through a transition.

I think what's happening in our business is that you have to be more selective. You are not going to be bailed out of your mistakes by the fact that the market is growing very quickly. In the past for Qiming, we've made approximately 70 investments during the last six and half years. We had less than 10% of the companies fail, which is extraordinarily low for the kind of investing that we do compared to what would have been in the U.S. or other markets.

So as our (venture capital) market matures, we expect more failures among early stage companies. In the U.S., somewhere from a third or half of the start-ups fail, but we have been nowhere close to that. This means we have to pick better CEOs, look for more complete management teams, and have a better idea of how technology will evolve. So for example, in healthcare and clean tech, we align ourselves more with government policy initiatives, such as the twelfth five-year plan as the leadership decides how they want the sector to develop.

Q: You founded Qiming Venture Partners in 2006. What sets you apart from other venture firms in China?

A: In the beginning, our premise of founding Qiming was to combine venture capital investing with operating expertise. Secondly, we are a flat organization. All of our employees who share the same title are paid exactly the same. Lastly, we look at everything from a sector lens. We don't have generalists who do a deal in healthcare today and a technology deal tomorrow.

Q: You've been in the IT/internet sector for a long time. Where do you see the best investment opportunities within China's IT/Internet sector?

A: The most attractive opportunities are clearly in mobile, and it's clearly the migration of all the services that you do on the Internet, on your PC, on your laptop or desktop, the migration of all those to mobile. People doing more electronic commerce transactions, people doing more monitoring of their life, whether it's keeping track of your steps or your calories, keeping track of your photos, it's more and more moving everything you would normally have had tethered to your desk, and having that with you wherever you want to be.

And I think also it's interesting here to see how privacy evolves, and issues around privacy. There is no Facebook in China unless you go through a VPN. But there are other companies that have tried, but I don't think anyone has achieved that yet to the extend of what Facebook has done in the U.S. People express themselves through Weibo on Sina,