Minsheng Investment reveals ambitious path towards 1tr yuan valuation within three years

CMIG president Li Huaizhen: “We want to bundle all the resources of different private businesses to play a leading role in the Chinese economy”

PUBLISHED : Friday, 21 October, 2016, 4:50pm
UPDATED : Friday, 21 October, 2016, 11:00pm

After more than two years in operation, China Minsheng Investment Group (CMIG) – the mainland’s largest non-state investment conglomerate – has lifted its veil of secrecy for the first time to reveal ambitious plans to create a huge business empire, that should play a key role in the development of China’s entire private sector.

In an interview with South China Morning Post, its president Li Huaizhen said the business is set for massive expansion, mainly through acquisition, and has a target value of 1 trillion yuan by 2019, just five years after its creation.

“We are looking at quite a few segments, encompassing financial and industrial assets. We are already heavily involved in new energy, property management, prefabricated construction, investment banking, leasing and insurance,” Li said.

“The businesses is being developed according to script, and we are certain of reaching that one-trillion-yuan-level on schedule.”

The president added that CMIG would also focus on insurance, leasing and asset management to bolster its financial businesses while consolidating its footholds in the other areas, including the elderly care market.

Regional-level investment groups copying the Minsheng model to brave economic slowdown

Founded in 2014, CMIG was the brainchild of Chinese Premier Li Keqiang and has been attracting rave reviews over the past two years, just as the national economic slowdown has continued to wallop privately-owned businesses.

It was initially dubbed as nothing more than a copycat of China’s sovereign wealth fund, China Investment Corp, with the specific purpose of breaking up the monopolies of the state-owned juggernauts.

A former chief of the mainland banking regulator’s accounting department, Li Huaizhen says, however, the business has a lot more ambition that just being a demolisher of some of China’s most unwieldy state companies, and adds the group’s business structure is modern and its interests diversified.

“CMIG is a group that engages in both the financing and manufacturing industries, targeting domestic and international markets,” he said.

“After two years in business, we have figured out our focal points. We want to bundle all the resources of different private businesses to play a leading role in the Chinese economy.”

Li’s description of its business model shows that CMIG has a very different approach to the sovereign wealth fund, which focuses on pure investment rather than actually running the businesses it owns.

The founding members of CMIG – which has a registered capital of 50 billion yuan – include 59 leading non-state-owned companies, including Suning Commerce Group and real estate owner and developer, Yida Group. Its chairman is Dong Wenbiao, former chairman of China Minsheng Banking Corporation.

CMIG initially focused on offering loans and other means of debt financing to expand its business but now its total assets have broken through the 200-billion-yuan mark, following a clutch of investments and acquisitions.

The mainland economy, despite being on a fast track of growth for the past three decades, has slowed considerably in the past two years, unnerving Chinese leaders already faced with having to deal with a long list of loss-making, monopolistic state-controlled businesses.

CMIG’s creation was read as a clear indication of intent by the leadership to inject new vigour into the world’s second-largest economy, as margins thinned across corporate China, which was also starting to have an effect on new business creation, and threaten the survival of many new companies.

“Its business strategy, performance and pace of growth are watched closely by entrepreneurs, although none are members of the conglomerate,” said Chen Xiao, the owner and chief executive of advertising agency Shanghai Yacheng Culture.

“Bosses of privately owned companies view this company’s moves as a barometer to gauge the outlook of their own businesses.”

Anecdotal evidence now shows a rising number of entrepreneurs have either started or plan to start transferring parts of their personal wealth abroad to dodge the economic downturn, after being spooked by a slumbering stock market and a depreciating Chinese yuan.

Talking pretty much for the first time about its future development strategies, Li’s bullishness about CMIG’s prospect is very much the polar opposite to current conditions, especially among small business owners, many of whom are losing confidence in a mainland economy saddled with overcapacity, rising labour costs and sky-high land prices.

Bosses of privately owned companies view this company’s moves as a barometer to gauge the outlook of their own businesses
Chen Xiao, the owner and chief executive of advertising agency Shanghai Yacheng Culture

Private investment growth in China slowed to a record low of around 2 per cent this year, raising fears of further anguish among the private sector, which actually provides 80 per cent of the country’s jobs.

Li, however, is fully confident of strong future growth in the private sector, pointing out that all economies are cyclical in nature, and many private businesses just happen to have entered a downward stage.

“My observation is that the slower private-investment growth will be temporary,” he said.

“At this stage in China’s development, short-term slower investment is inevitable. But it will eventually rebound.”

China’s government in Beijing is making an all-out effort to buoy the economy by expanding consumer demand, instead of infrastructure investment and exports, envisioning slower but sustainable growth pattern – what it has coined the “new normal”.

Li said that CMIG will follow that direction too, by stimulating consumer demand in pursuit of long-term growth.

One of its newest directions is into caring for the elderly. It plans a chain of private nursing homes, again a sector encouraged by the government, as China’s growing population continues to age, putting huge pressure on its health services.

CMIG has already dipped its toe into the management of such businesses, and Li said by the end of the year it is likely to be operating a total of 300 million square metres of residential homes.

“When the figure hits 1 billion square metres, we will be able to offer services to around 40 million residents,” he said.

“We can also help these senior citizens manage their wealth as well as offer them proper nursing services, thus easing the national ageing problem.”

Economists have applauded CMIG’s efforts so far, especially in how it has creating such industry chains that can have an impact on people’s daily lives, particularly in sectors that are of greatest importance to the country’s economic development.

In November 2014, a CMIG-led consortium of investors paid 24.85 billion yuan to buy a 200,000 square metre parcel of prime land on the west bank of Huangpu River, in Shanghai, on which work has already starting on a mega commercial complex.

And in April this year, its CMIG International offshoot completed the acquisition of Sirius International Insurance Group, for US$2.6 billion.

Laurence Liao, the unit’s chief executive who overseas all the group’s international investments, said the firm has its sights firmly set on projects in the United States, Europe and Southeast Asia.

“Our intention is to build CMIG into a brand for Chinese private businesses, across the world,” Liao said.