Beijing News Interview with Chang Chen: Bullish on China's Consumer Market, Demand Recovery Will Drive Supply-Side Evolution
Long-term bullish on the massive investment opportunities in China's new consumer market.
As the COVID-19 pandemic evolves, the uncertainty it brings continues to grow. Yet based on China's rapid policy response, its well-developed infrastructure, and the world's largest consumer market, among other factors, we have ample reason to remain bullish on the resilience of China's economy over the long term. As demand in China's consumer market gradually recovers, it will also drive upgrades and evolution on the supply side of consumption.
Recently, Chang Chen, founding partner of Gaorong Ventures, sat down with The Beijing News for an in-depth interview, offering a comprehensive read on post-pandemic economic development and consumer market trends, as well as the investment opportunities that Gaorong Ventures continues to bet on and actively deploy in.
Key Takeaways:
China has the world's largest consumer market, and we have ample reason to remain bullish on the resilience of China's economy over the long term. Demand in the consumer market will also gradually recover, driving upgrades and evolution on the supply side of consumption.
Going forward, consumers will develop more mature consumption values — such as pursuing cost-effectiveness, convenience, and healthier lifestyles. These shifts in consumer mindset represent an upgrade in consumption philosophy and create new opportunities for consumer entrepreneurship.
High-tech industries driven by 5G, IoT, big data, and artificial intelligence will take off against the backdrop of "new infrastructure."
Traditional supply channels represented by wet markets can no longer meet the needs of new consumer demographics. The rise of fresh grocery e-commerce is therefore inevitable.
In the 2020 primary market, sector leaders across industries will see tremendous opportunities. Companies with differentiated value, technology-driven models, and positive unit economics will have greater competitive advantages to seize opportunities for counter-cyclical growth, and will also be more likely to win favor from capital providers.
Below is the interview with The Beijing News (edited and condensed):
Bullish on China's Economic Resilience Over the Long Term; Innovation Opportunities Emerge from Crisis
The Beijing News: The COVID-19 pandemic is now spreading globally. How do you view its impact on China and the global economy? How significant is the impact on consumption?
Chang Chen: As of now, by and large, China has passed through the "darkest hour" of the outbreak; the peak of transmission has passed. However, overseas the pandemic is entering a period of rapid acceleration. According to WHO data from March 12, confirmed cases outside China had already exceeded 40,000.
At this particular moment, we feel more deeply than ever the meaning of "a community with a shared future for mankind." We see that even as China focuses on fighting the epidemic and resuming work and production, it is also extending a helping hand overseas to accelerate global recovery.
In the near term, this "black swan" of a pandemic has dealt a significant blow to the economy. The US stock market triggered circuit breakers twice in one week — unprecedented. The magnitude and duration of the pandemic's downward pressure on the economy remain difficult to predict with precision. But viewed over a longer time horizon, we remain optimistic about the global economy, and particularly China's economy.
On one hand, looking at modern history, the economic impact of infectious diseases has always been temporary. The pandemic's primary effect is on sentiment rather than sustained damage to the economy and capital markets; it does not alter the long-term trajectory of economic development.
On the other hand, based on China's rapid policy response, its well-developed infrastructure, the world's largest consumer market, supply chain advantages, improving labor quality, and technology-driven upgrades, we have ample reason to remain bullish on the resilience of China's economy. The follow-up fiscal and monetary policies, as well as the long-term tailwinds created by China's "new infrastructure," are all worth looking forward to.
At the same time, demand in the consumer market will gradually recover, driving upgrades and evolution on the supply side of consumption.
The Beijing News: Compared to the 2003 SARS outbreak, how is the impact of COVID-19 on consumption different this time?
Chang Chen: This outbreak's impact is broader than SARS. In 2003, epidemic prevention efforts focused mainly on a handful of cities — Beijing, Guangzhou, Hong Kong. This time, the entire population is participating in the "fight against the epidemic," so the impact on cross-regional consumer chains is much greater.
The Beijing News: Which industries do you think will benefit from this pandemic? Which will face significant challenges? Which will transform, differentiate, and evolve after weathering the crisis?
Chang Chen: After the outbreak began, Gaorong conducted systematic research. History shows that major crises often give birth to disruptive innovation opportunities. After the 2003 SARS crisis, we saw e-commerce, online payments, and express logistics take off. After the 2008 global financial crisis, domestic demand, mobile internet, and the sharing economy exploded.
Under the current pandemic, in the near term we've seen industries like travel and tourism, traditional dining, and offline film and entertainment suffer heavy blows. But we've also seen some favorable opportunities.
First, the pandemic has forced a nationwide, concentrated experience of online services. Standout areas include online office tools, online education, e-commerce, and fresh grocery retail. Online services that truly create value for users will use this opportunity to solidify and generalize user habits, gradually building infrastructure-level companies as ubiquitous as capillaries.
Second, the pandemic has accelerated China's informatization and digitalization process, and will also accelerate the transformation and upgrading of China's industrial structure. Enterprises and institutions nationwide are providing online services. Driven by technology, large numbers of companies will further transform toward online operations, datafication, and intelligentization. Companies unable to adapt to these new trends and changes will gradually be eliminated by the market.
Third, high-tech industries driven by 5G, IoT, big data, and artificial intelligence will take off against the backdrop of "new infrastructure."
Consumer Values Continue to Upgrade; The Rise of Fresh Grocery E-Commerce Is Inevitable
The Beijing News: After this pandemic, is consumption upgrading or downgrading more likely? How do you view changes in people's consumption values going forward, and investment opportunities in the consumer market?
Chang Chen: With the rise in per capita disposable income and continuous improvement in the social environment in recent years, people's lifestyles have changed considerably. People's understanding of consumption keeps deepening, and consumer demand keeps maturing. Going forward, consumers will gradually develop more mature consumption values — such as pursuing cost-effectiveness, convenience, and healthier lifestyles. These values represent an upgrade in consumption philosophy and simultaneously create new opportunities for consumer entrepreneurship.
Over the long term, China's new consumer demographics continue to iterate at high frequency. Young consumers of a new era, new urban and rural consumers brought about by the internet's reach, and new types of supply in various niche segments driven by consumption upgrades are all continuously spawning new demand. We remain bullish over the long term on the tremendous investment opportunities in China's new consumer market.
The Beijing News: Recently, a Beijing News consumer survey showed that 90% of respondents reported significantly increased consumption of fresh produce and fruits during the pandemic. Data obtained from multiple e-commerce platforms shows that overall fresh grocery sales grew 1.5 to 7 times year-over-year. How do you view the rise of fresh grocery e-commerce during this pandemic — is it a short-term fad or an industry with long-term growth potential? Is it necessary for large e-commerce platforms to specifically focus on or spin off fresh grocery e-commerce?
Chang Chen: The rise of China's fresh grocery e-commerce industry today is inevitable. On the supply side, traditional fresh produce supply chains contain many redundant and inefficient links. On the demand side, traditional supply channels represented by wet markets can no longer meet the needs of new consumer demographics. Today's consumers, especially young people, are more willing to trade money for convenience. This pandemic has also allowed more consumers to experience the value that fresh grocery e-commerce delivers, accelerating the cultivation of user habits.
Yet fresh produce supply chains are extraordinarily complex, with weather, supply, labor, logistics, and other links full of various uncertainties. This requires fresh grocery e-commerce companies to have sufficiently strong technology-driven capabilities, the ability to build high-quality supply chains, and refined operational abilities to ensure reliability.
If fresh grocery e-commerce can, through this kind of sustained, reliable service, earn user trust and cultivate consumption habits, it can continuously capture greater share of consumer wallets. While welcoming long-term development opportunities, it will also drive upgrades and transformation in China's agricultural economy.
Large e-commerce platforms have already made deep forays into fresh grocery. For example, of Pinduoduo's over one trillion RMB in GMV in 2019, roughly 13% was agriculture-related products. Through composite and rich product structures, they can provide users with one-stop shopping experiences and improve purchase conversion rates and repurchase rates.
The Beijing News: Offline dining and offline entertainment have suffered devastating blows, while major e-commerce platforms have provided great convenience for people's daily lives. How do you evaluate the role e-commerce has played in this epidemic prevention effort?
Chang Chen: Indeed, as infrastructure for the information age, e-commerce has played an important role in this battle against the epidemic. Beyond continuously donating protective medical supplies to frontline healthcare workers and fulfilling corporate social responsibility, major e-commerce platforms have also strictly monitored and stabilized prices for daily necessities on their platforms to safeguard people's livelihoods. Fresh grocery e-commerce platforms like Dingdong Maicai and Pupu Supermarket have partnered with service-sector companies like restaurants and hotels on "shared employee" programs, addressing employment issues for idle workers affected by the pandemic while also leveraging more flexible value networks to ensure order fulfillment.
Another important point is that e-commerce also has deeper positive impacts on economic transformation, targeted poverty alleviation, and employment security at the macro level. For example, Pinduoduo, which we invested in, opened a green channel for e-commerce-assisted agriculture, successively investing one billion yuan in logistics subsidies and 500 million yuan in agricultural product-specific subsidies. Purchasing agricultural assistance products also became a popular consumption trend during the pandemic.
"New Infrastructure" Will Provide New Momentum for China's Economic Growth; Sector Leaders Will See Tremendous Opportunities
The Beijing News: Beyond the new consumer market, will Gaorong Ventures increase its investments in emerging technologies led by artificial intelligence?
Chang Chen: In emerging technology, Gaorong has continuously invested in AI, smart hardware, robotics, and other fields over the past several years, including world-class technology companies such as Nuro, YITU, and Roborock. In the past two years, we've also seen emerging technologies increasingly integrate deeply into industries, truly solving real-world problems. For example, AI is entering healthcare, finance, urban governance, and enterprise operations.
Moreover, the national push to develop "new infrastructure" focused on the technology end — including 5G, ultra-high voltage power transmission, intercity rail transit, new energy vehicle charging stations, big data centers, AI, and industrial internet — will also provide new momentum for China's economic growth. We witnessed the magnificent wave of innovation in China's internet over the past 20 years, and look forward to discovering and investing in more world-class new technology startups amid the new wave of technological development and industrial transformation.
The Beijing News: Some have argued that the healthcare industry will explode after this pandemic. Gaorong Ventures also invested early in companies like Ping An Good Doctor. Why did you pay attention to companies in the healthcare industry? Will the healthcare industry take off after the pandemic?
Chang Chen: Healthcare is fundamental to human destiny and well-being. We have paid continuous attention to this space and invested in a number of excellent companies across medical testing, health services, and innovative drugs, hoping to jointly provide Chinese people with more intelligent, personalized, and cost-effective healthcare services.
After the pandemic, we also see new opportunities emerging in healthcare. This includes optimism about the long-term development of China's healthcare informatization construction; online consultations and remote medicine effectively alleviating pressure on offline diagnosis and treatment, with health and chronic disease management trending online; AI technology powering intelligent medicine; broader digital health consumption worth watching, including wearable devices helping people build personal digital health profiles; and wellness, preventive health, and mental health also meriting attention.
The Beijing News: 2019 was already a capital winter for many startups. According to CVSource data, in the first 11 months of 2019, only 5,387 companies received funding — less than half the 2018 figure. Will funding in 2020 be even more conservative? What changes will occur in the 2020 primary market?
Chang Chen: We have always believed that the most difficult moments are often when great companies are born. In the 2020 primary market, we believe sector leaders across industries will see tremendous opportunities. Companies with differentiated value, technology-driven models, and positive unit economics will have greater competitive advantages to seize opportunities for counter-cyclical growth, and will also be more likely to win favor from capital providers.
The Beijing News: Facing the 2020 investment market, how will Gaorong Ventures position itself?
Chang Chen: Since the beginning of this year, two of Gaorong's portfolio companies have successfully gone public via IPO. We have also maintained our consistent investment pace, continuously investing in companies with innovation power and growth potential across new consumption, new technology, industrial internet, and healthcare.
Recently, multiple Gaorong portfolio companies have also completed new funding rounds against the headwinds. We look forward to joining hands with more entrepreneurs who dare to fight and know how to play "against the wind," discovering opportunities from crisis, building moats, and together welcoming new development opportunities.
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