“Look at the current investment environment, reminds me of the environment when Yue Fei several northern expeditions, pouring the power of the South to recover the bitter cold lost land in the North unsuccessfully. Is it worth it?” Investor Shen Esther lamented, “In the past, we mainly invested in the eastern coastal cities north of the Huaihe River, and will do so in the future. In the north, except for Beijing, we do not invest in any of them.”
I think that when the Jin army pressed the territory, the Southern Song Dynasty was defeated. Yue’s army collected Ezhou, Luoyang and restored Zhu Xianzhen with only one force. However, twelve gold medals under the reluctance to return to the dynasty, ten years of conquest destroyed. Today, the investment environment and Yue Fei’s northern expedition as a comparison, perhaps not appropriate. But from a certain point of view, it seems to be able to find common ground.
For example, the “affluent” south is attracting more and more social capital, while the north is getting colder. Although RMB funds and USD funds exist in two dimensions, there is a convergence in terms of geographical investment.
To take a glimpse, in 2020, when the economic downturn epidemic struck, investment institutions frequently landed south of the Huai River, except for Guangxi, Jiangxi, Guizhou and Yunnan, the rest of the provinces south of the Huai River had over 100 corporate financing events. North of the Huai River, in addition to Beijing, are only a few dozen, or even a few pieces.
Investment has been “but the mountain customs” said, now, from the actual situation, the mountain customs are too far away. More than 90% of the investments are not more than the Huai River, and even, some investors have flirted with the idea that “investment is not more than the Southern Song Dynasty”.
After 900 years, social capital gathered south of the Huai River, can investment break through the “Southern Song map”?
01 Huaihe River north and south of the winter and summer, the North, Guangdong, Zhejiang and Suzhou fierce “gold absorption”
Data is the best explanation.
According to the sky-eye survey, from 2015 to 2020, the country has 73914 financing events, the total amount of financing 6,921.6 billion yuan. From a geographical point of view, Beijing, Shanghai, Guangdong, Zhejiang, Jiangsu, the five places with an absolute advantage in the lead.
Among them, Beijing leads with 17,964 financing events and 220.2 billion financing amount, followed by Shanghai, Guangdong, Zhejiang and Jiangsu with 11,684, 11,953, 6,938 and 6,472 financing events and financing amounts of 1,110.3 billion, 1,038.7 billion, 6,880 billion and 420.2 billion respectively.
Analysis of national corporate investment and financing from 2015-2020
Note: The screenshot is from Sky Eye Pro
Even in the case of economic downturn and epidemic raid in 2020, the financing events and amount in North, Guangzhou, Zhejiang and Suzhou are still hot, with 442, 322, 390, 216 and 207 financing events, respectively, and the financing amount is 74.8 billion, 70.3 billion, 96.6 billion, 37 billion and 21.5 billion.
If you look closely at the geographical boundaries of the capital favor and cold, you will find that many investors have lamented the reason for “investment but the Southern Song Dynasty”: taking the Huai River as the boundary, south of the Huai River, in addition to Guangxi, Jiangxi, Guizhou, Yunnan, the rest of the provinces financing events have been over 100. North of the Huai River, except for Beijing, none of them exceeded 100.
According to incomplete statistics, Rongzhong Finance has compiled the geographical layout of the four more active investment institutions in 2020, which is as follows.
As seen above, Sequoia Capital China loves Beijing and Guangdong the most in terms of investment direction, and the investment in these two regions alone accounts for 51% of the total investment events; Deep Venture Capital is fond of Guangdong, with 41 investment events, accounting for 36% of the total number of investments; IDG has invested 46 times in Beijing and Guangdong, accounting for 63%; and True Foundation has invested 27 events in Beijing and Guangdong, accounting for 56%.
Almost every capital in the North, Guangzhou, Zhejiang and Suzhou love, the central city economic comeback “dark horse” Hefei, in the epidemic in the first three quarters of the fastest growing trillion GDP city of Nanjing and other cities are also in the spotlight. If we take the Huai River as the boundary and count the investment events from the north to the south, there is no doubt that the south of the Huai River wins by an overwhelming margin. The sharp geographical boundaries of investment have become a fact.
Is the over-concentration of capital investment a good phenomenon or a bad one? This is a question worth thinking about.
02 “Single point breakthrough” creates star cities, and cluster development becomes a trend
In addition to the “single point breakthrough”, the development of urban clusters and industrial ecology has become a trend. The most typical representative is the Guangdong-Hong Kong-Macao Bay Area and Chengdu-Chongqing twin cities.
On February 18, 2019, the “Outline of the Development Plan of Guangdong-Hong Kong-Macao Greater Bay Area” (hereinafter referred to as “Outline”) was announced, in which it is mentioned that the cluster development will be realized around the “9+2” cities in the Lingdingyang area of the Pearl River Delta region of China, with “9” being Guangzhou, Shenzhen, Zhuhai, Foshan, Dongguan, Zhongshan, Jiangmen, Huizhou and Zhaoqing, and “2” being the two special administrative regions of Hong Kong and Macao.
The Outline clearly mentions that a number of major industrial projects will be cultivated in key areas such as protein-based biopharmaceuticals, high-end medical diagnosis and treatment equipment, genetic testing, modern Chinese medicine, etc., while increasing financial support for pharmaceutical innovation enterprises and improving capital-raising channels. This means that the Greater Bay Area will focus on building a biomedical industry ecology, while warmly embracing all kinds of social capital that favors biomedical enterprises.
Venture Capital is the local state-owned background investment institution in the Greater Bay Area, and the most active investment institution in the Greater Bay Area, with a special biopharmaceutical fund set up, which has successively invested in projects such as Microchip Bio, Myri, and Zhongshan Kangfang.” The introduction of the Greater Bay Area plan is a relatively big historical opportunity, and really good companies are not worried about raising capital in the Greater Bay Area.” Cao Xuguang, executive general manager of Deep Ventures, has said.
IDG Capital has also increased its horsepower in the layout of the Greater Bay Area, making South China or the Greater Bay Area the center of investment. idg capital partner Mr. Zhang Jianbin has said that the Greater Bay Area is a historical opportunity, “for China, especially South China, is a very good opportunity for investment and entrepreneurship, idg capital values this opportunity very much.”
In addition to biopharmaceuticals, manufacturing has strong advantages in the Guangdong-Hong Kong-Macao Greater Bay Area. The computer technology service industry driven by Tencent is booming, and well-known companies such as the home appliance industry giant Midea and the furniture industry personalized customization pioneer Shangpinzhai are also located in the Greater Bay Area.
In addition, business-to-business and business-to-industry centers form ecological networks to achieve win-win cooperation. For example, the United States and Amazon, Ali, Tencent, huawei, Baidu, OPPO and many other famous enterprises to carry out IoT cooperation, Shangpinzhujia joint home improvement industry leading enterprises in various segments to create a digital home symbiosis ecosystem, etc..
The twin-city economic circle in the Chengdu-Chongqing region and the construction of the Western (Chongqing) Science City are another representative of urban cluster development. Government-guided funds, social capital and startups work together to build industrial chains, while the development of the invested enterprises after landing feeds the development of the local industrial ecology.
In March 2020, Chengdu and Chongqing signed a strategic cooperation agreement on the interconnection of the two ports’ channels, interconnection of port areas and complementary industries. After that, the first development fund of Chengdu-Chongqing twin-city economic circle was located in Chongqing High-tech Zone, focusing on investment in strategic emerging manufacturing and service industries such as integrated circuits, intelligent manufacturing, biomedicine, etc. in Sichuan and Chongqing, to boost the synergistic economic development of Chengdu-Chongqing twin-city. It is worth mentioning that the fund’s investment direction fits with the industries focused on the development of Chongqing High-tech Zone, and Chongqing has also released 64 policies to promote the construction of the twin-city economic circle and the Western (Chongqing) Science City in Chengdu and Chongqing.
At the same time, Chongqing Angel Guidance Fund signed three new funds with Chongqing High-tech Zone and Pilot New Territories, IDG Capital and Northern Light Venture Capital, with a total scale of 5.3 billion yuan. In addition to directing social capital to venture capital, these three new funds will moreover guide and gather early science and technology elements in Chongqing, become a booster for the development engine of the West (Chongqing) Science City and even the whole Chongqing related industries, as well as boost the development of the real economy in Sichuan and Chongqing to improve quality and efficiency, transformation and upgrading.
Chongqing Angel Guidance Fund and Northern Light Venture Capital have already cooperated on two funds, with the former acting as a local government guidance fund LP to obtain supportive policies from the government for the invested companies to better land. The latter has successfully transformed the return investment requirement into a landing service for the portfolio companies, which not only carefully completes the return investment ratio, but also plays a crucial role in building the local innovation ecology in Chongqing.
In the case of smart manufacturing, for example, both Zhongke Chuangda and Black Sesame Smart Technology, which Northern Light Ventures has deeply cooperated with and incubated, are flourishing in Chongqing. The two companies, one making chips and the other making intelligent cockpits, are both key players in the automotive industry chain. In particular, the landing of Centronics, a global leader in business, has played a leading role in the development of the local smart industry, attracting many companies of the same type in the region.
“The cooperation with Chongqing Angel Guidance Fund has played a very important role in promoting Northern Light’s strategy to develop towards the mainland, and now we will more seriously consider gradually expanding our investment from the Yangtze River Delta and Pearl River Delta to the rising cities in the west.” Deng Feng, founding managing partner of Northern Light, said.
Capital’s “preference” for geography can be seen as a strong footnote of “local competition.
Which city cluster will be the most important segment of China’s economic development in the next step? Which city will become the next highland of China’s economic development? Although no definite conclusion has been made yet, it is certain that one of the most critical factors for the leader is “technology”.
Who has mastered the core technology, who will run out of the general trend of industrial transformation and upgrading.
03 GDP north “lost”, investment should not cross the Huai River?
In November, the first three quarters of 2020 Chinese cities (mainland) GDP top 50 list of dust settled.
GDP exceeded one trillion yuan in Shanghai, Beijing, Shenzhen, Chongqing, Guangzhou, Suzhou, Chengdu, Hangzhou, Nanjing, Wuhan and Tianjin, 11 cities, more than 500 billion yuan in 31 cities. And in the top ten list, Beijing became the only northern city.
From the perspective of GDP growth rate in the first three quarters, 10 cities including Xi’an, Nantong, Nanjing, Hangzhou, Changzhou, Changsha, Jinan, Fuzhou, Changchun and Xiamen performed well, with growth rates exceeding 3%. In these 10 cities, 7 are located south of the Huaihe River, only Xi’an, Jinan, Changchun three cities located north of the Huaihe River.
The north “lost”, China ushered in the era of the Great South?
On the topic of “widening gap between north and south”, Lu Ming, a special professor at Antai School of Economics and Management of Shanghai Jiao Tong University, said in a media interview that the current GDP gap is mainly brought about by the shipping capacity along the Yangtze River and the coast.
“The farther the city is from a big port, the smaller the GDP scale tends to be. And just one variable, distance to a big coastal port, has an explanatory power of 39 percent on the size of GDP between Chinese cities and towns, more than the sum of all the factors that can explain the size of GDP between cities, and that’s with the country’s strong support for the development of the mainland.” Lu Ming believes that as times change, cities play different roles in driving the country’s development.
Going back hundreds or even thousands of years, the northwest was China’s economic and political center of gravity, and the south was the breadbasket. During the planned economy decades ago, the economy of the south was weak, and the manufacturing industry of northeast and north China led by an absolute margin. Today, the coastal areas along the rivers are better suited for export-oriented manufacturing, and the inland cities seem to be better suited for modern service industries.
GDP can be expressed in numbers, but the size of each city’s contribution to the country is very difficult to measure. And it should not be overlooked that each city has its own strengths, potential, and shortcomings.
For example, as the city at the mouth of the Yangtze River and the leading city in the Yangtze River Delta, Shanghai’s geographical advantage plays a key role in its economic development, but about 30% of its GDP is driven by state-owned enterprises, and the development of private enterprises needs to be improved; the northeast and Tianjin have been burdened with heavy debt by the local government due to the super large-scale construction. Once the debt is lifted, can the northeast and Tianjin slow down the economic development on a run?
The wind is long enough to see the amount. In the development of each place, instead of focusing too much on economic growth figures, it is better to think about how to play to the advantage of the icing on the cake, how to make up for the shortcomings to catch up.
Reflected in the investment, if only to GDP to judge and evaluate the development achievements of a region, or even ranking, “is easy to mislead the local pursuit of unilateral development speed and policy, to invest, the final result is often contrary to expectations, the return on investment is not high, and even increase the burden of local government debt.”
From “investment but the Shanhaiguan”, and then “investment but the Huai River”, rather than saying that the focus of capital has shifted with the changing times, it is better to say that the regional development pattern is being updated, and the positioning function of each region for national development is changing.
As for, should investment cross the Huai River, when to cross the Huai River?
We just need to understand that effective investment is not blindly encouraged to invest in the slower pace of economic development, but to respect the laws of the economy, follow the nature of investment, and then wait for the wheel of the times to run over one by one.
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