PEI: Given the political tensions, China is not the easiest place for Taiwanese investors. So why have you adopted such a China-centric strategy?
Direct investing in domestic Chinese companies has been a new thing to most Taiwanese venture capitalists – [but] China has not been a foreign place to us. In fact, 66 percent of what China exports is made by Taiwanese operators, and of the top 30 exporters in China, 17 are from Taiwan. [CDIB Capital’s] strategy is very simple: we take what worked for us in Taiwan, and say, ‘Hey, Taiwan cannot possibly be the only country that can be benefited in this way.’ So the 14 investments that we have today are all in what we call “three corridors”: Taiwan-China, Korea-China, and US-China.
Our core competence arises from knowing how to work in China, without necessarily investing in Chinese companies. And it’s not like we figured it out because we were smart – we had to figure it out because we’re Taiwanese. We were not allowed to do it the way everyone else did.
Q: What is it about China that pushed you to ‘figure it out’?
China has served – and continues to serve – as a great export base for us. But increasingly China is becoming a market for Taiwanese consumer products and services. Taiwan has been the beneficiary of a lot of American and Japanese influence, so the quality of its consumer products and service has been high. The problem has been a limited domestic market – [even if] everyone uses your product, it’s still a small business.
With the opening of China as a consumer market, that has really changed. China first coupled with the Taiwan IT
Our core competence arises from knowing how to work in China, without necessarily investing in Chinese companies.
industry, and really penetrated the 3C [computer, communication and consumer electronics] products for re-export. But now, when you look at the consumer side, it becomes a lot more multifaceted – and that’s actually changing the Taiwan economy mix.
Q: Why has the bank chosen to raise RMB vehicles?
Because of [Taiwan law], [the bank is] only allowed to invest 15 percent of our net worth in China. For us, that would translate to about $1.5 billion. So raising an RMB fund gives us more leverage on our capital, and allows us to do bigger deals. We’re now raising three 65-35 joint venture RMB funds in China (we’re [the] 65 [percent]) with localities in China – and each is RMB 1 billion, rather than [having] one RMB 3 billion fund. And I think we’re the only ones doing this.
We believe if you’re Blackstone or Carlyle, it’s OK to raise a national RMB fund; but in our business, because the bank has always been focused on venture to early-stage growth capital, the nature of our dealflow is very local. So if a Shanghai deal travels to Beijing, you know something’s wrong with [it] – most good deals will never be able to leave the city limits.
Q: Which areas will you target?
All three strategies are really focusing on industry integration between the two sides [of the Taiwan Strait]. A lot of it is going to be Taiwan technology [or] Taiwan products with a China distribution or manufacturing base – so some leverage on export, some leverage on having domestic channels in China. And one of the good things is that it seems we don’t have much competition. It’s a very proprietary sector: 75 percent of [the group’s] dealflow comes from our existing network of 325 active portfolio companies.