china Economy

The New Economy in China: The Past 20 Years and the Next 20 Years

"China's new economy is going through a critical transition period, and in the past two years, as VCs, our perceptions of industries, companies, technologies and investment logic have undergone a dramatic shift."
China’s President Xi Jinping raises his glass and proposes a toast at the end of his speech during the welcome banquet for leaders attending the Belt and Road Forum at the Great Hall of the People in Beijing on April 26, 2019.

By Eric Li / Beijing Cultural Review

Currently, the world economy is under pressure and the domestic economy is under challenge. In this speech, Li Shimer, Founder and Managing Partner of Becoming Capital, points out that China’s economic logic is undergoing a dramatic shift from a venture capital perspective. He believes that China’s new economy, from 2000 to 2019, is the “first twenty years”, characterized by a “capital leveraged state”, where the dominant force supporting high economic growth is the state, and capital only rises with the wind with the help of scale effect, in the industry’s In the “smile curve” of the industry, it is still in the middle position, and the added value of R&D and sales is relatively low. In the “latter two decades” starting from 2020, China’s economy will undergo a profound transformation, and the logic of the future is “national leveraged capital”, and capital should really play the role of driving industrial development, and help China’s economy transform from scale to high quality development.

He believes that investors should focus on three areas: (1) supply chain transformation and optimization; (2) hard technology import substitution; and (3) sustainable development, with a focus on “high-quality development + common wealth”. At the same time, capital should also pay attention to the direction of common wealth and the new positioning of capital by the Communist Party of China, and grasp two principles: first, it should closely integrate its investment return interests with national interests and actively play the function of production factors; second, it should not pursue its own interests and run counter to the long-term interests of the country and the well-being of the people.

This article is a transcript of the author’s speech at the 2022 Global Venture Capital Conference hosted by Qingdao Municipal People’s Government on June 10-11, originally entitled “Twenty Years of China’s New Economy Before and After”.

Good afternoon, everyone.

China’s new economy is going through a critical transition period, and in the past two years, as VCs, our perceptions of industries, companies, technologies and investment logic have undergone a dramatic shift. We used to divide the history of the new China into the “first 30 years” and “second 30 years” of reform and opening up. Today, I would like to borrow this concept and divide China’s new economy into “the first two decades” and “the second two decades”.

The first two decades were, of course, from 2000 to 2019. During this period, China’s GDP doubled nine times, creating the world’s largest industrial chain, and the world’s second largest consumer market. It was the mega-scale industry and market that created China’s new economic takeoff.

In the first two decades, the most important result of China’s new economy was the rise of consumer Internet platforms. We VCs are familiar with the fact that, backed by such a large market in China, a platform can simply support its continuous expansion with financial capital, eventually achieve monopoly status, aim for a future monopoly, discount it into a huge net present value (NPV) in the present, and then use this NPV as valuation financing to help it achieve monopoly. This is the financial closed-loop development model of consumer Internet platforms, and as a result we have given birth to a number of world-class Internet giants in China.

However, in terms of technological development, a foreign think tank scholar has done a study to locate the position of each country on the “smile curve”. According to her study, we can find that from 2000 to 2019, China’s economic industry has increased in size, but has always been in the middle, that is, manufacturing and assembly, compared to the two ends of the research and development, sales, the value added is relatively low.

However, China has also achieved industrial upgrading in a few areas, such as high-speed rail, new energy, 5G, etc. However, these hard-tech industries with high R&D investment are led by government departments behind, and the government is either their investor or their big customer.

So last year, General Secretary Xi Jinping mentioned in his speech that the new round of scientific and technological revolution and industrial change has given a strong impetus to economic development, and also brought profound impacts on employment and income distribution, including some negative impacts, which need to be effectively addressed and resolved.

In my opinion, the first two decades of China’s new economy were essentially a “capital leverage state”. The consumer Internet mainly relies on business model innovation, and the technology content is not high. For example, the QR code that we usually scan was actually invented in the 1990s. It has developed so fast because it can draw maximum positive external benefits created by the country in the development process, such as the increase of disposable income of our residents, the improvement of logistics and transportation, and the popularization of information technology, which are all done by the state, not by us venture capitalists and entrepreneurs. But the negative externalities of this capital-driven, winner-take-all development model are borne by the state, resulting in the emergence of “Gilded Age” problems throughout society, such as the widening income gap and the lack of social security for take-out riders, among other socio-economic problems.

Therefore, the central government has proposed “high-quality development” and “common prosperity” to promote healthy economic development, optimize the distribution structure, create opportunities for more people to get rich, and avoid “in-rolling” and “This is a major turnaround in China’s new economy. This is a major turnaround and an important opportunity for China’s new economy, and the beginning of the next twenty years of China’s new economy.

In the next twenty years of China’s new economy, it should be “national leveraged capital”. Under the leadership of the national strategy, China’s economy will be able to transform from large-scale development to high-quality development through capital-driven industrial upgrading. On the smile curve, China should not only be large-scale, but also keep moving to the upper left. Moving up is to improve industrial value-added, which will lead to more high-skilled jobs and further increase per capita income, while empowering with technology to achieve cost reduction and efficiency gains and maintain the global competitiveness of Chinese manufacturing. Moving to the left is to improve research and development capabilities, so as to solve the problem of key technologies being “stuck”.

In the new development stage, our investment should be closely focused on “high-quality development + Inclusion”. Our company focuses on three main lines: the first is the transformation and optimization of the supply chain. China has the world’s largest industrial chain supply chain, but it is still relatively fragmented and generally lacks the ability to transform technology and information technology, so there is a huge value space to be explored.

The second is the import substitution of hard technologies. For example, chips, China’s largest annual import amount is chips, because of the global semiconductor shortage after the epidemic, and oil prices have fallen a lot, China imported 350 billion worth of chips in 2020, more than double the second place crude oil.

Another example is medical equipment, China has a lot of drugs and medical devices are dependent on high-priced imports, the space for domestic substitution is very large, and once the localization, can greatly reduce the burden of the people to see a doctor.

The third is sustainable development. Now the world is trying to achieve carbon neutrality, China is very early in this layout, and the investment is also the most. For example, the cost of photovoltaic power generation in the early stages of development abroad was $100 a kilowatt, but through the continuous development of Chinese companies, the cost has now dropped to a few cents per kilowatt, which is why it can be used on a large scale. Similarly, electric vehicle (EV) batteries, made in China, have greatly reduced the production cost of EVs, which is why EVs have developed so quickly in recent years.

What kind of companies will be accomplished in the next twenty years of China’s new economy? Let me share three cases with you. The first company is called Baibu, which is the largest textile fabric intelligent supply chain platform in China. Textile is a trillion dollar market, 90% of the world’s textiles are made in China. However, China’s textile supply chain is at a very primitive stage, with manufacturers scattered in the Yangtze River Delta and Pearl River Delta, numbering tens of thousands.

So Baibu is doing the industrial Internet in textile industry, linking the upstream and downstream of information asymmetry, allocating efficiently, turning the physical factory into a cloud factory, connecting hundreds of thousands of looms, optimizing production capacity, reducing costs and increasing efficiency.

The second company is called Big Bear Constellation. Welding is a traditional manufacturing industry, and a huge industry. Welding involves almost all industrial fields, bridge building, ship building, car building, house building all need welding, and its market size is hundreds of billions.

But welding is a very traditional industry, very dependent on the skills and experience of the operator. Now there are fewer and fewer good welders, and young people are not willing to do it, so we are facing the dilemma of a talent gap after 80s and 90s. Big Bear Constellation uses AI to train welding robots, which can solve the problem of shortage of welders at once, fast and well.

The third company is called Baioheng, which is also in an obscure industry – the cement industry. Many years ago, a Frenchman invented a cementitious material technology, which can make the slag of smelting industry into concrete with similar performance as cement. This technology was developed in the laboratory for many years, and then the Australians went on to engage, and finally did not put into practical application. Because the first of these countries do not have many smelters, can not find so much slag as raw materials; secondly, these countries do not have much demand for cement. Finally, several Chinese people found that this is a big business opportunity, because China has the world’s largest smelting industry, a large number of slag can not be disposed of, enterprises are very headache; on the other hand, China is infrastructure mania, need to use a lot of cement. Moreover, the State Council has very strict requirements on the carbon peak, and cement production is a big carbon emitter because of calcining limestone, which accounts for about 20% of the total national emissions, so the state strictly limits the cement production capacity. The production process of BIOHENG’s geopolymer material does not use limestone and does not need to be calcined, so the carbon emission is very small, only 30% of that of cement, so it can kill three birds with one stone, and it is very fast to land in all provinces.

The above-mentioned companies have a common feature, they are all entrepreneurial enterprises, but through a key technology, leveraging a huge scale of industry, and quickly grow into a segment of the industry leader. Such a phenomenon is also found in other developed countries, a large-scale industrial chain, able to support hundreds of “invisible champions”. China is the world’s largest producer, there must also be hundreds of “invisible champions”. Therefore, in the new economy of high quality development in the next twenty years, investors should not blindly pursue the financial driven scale as before, but should focus on the quality and build a deeper understanding of the industrial chain supply chain.

These are some of my perceptions of China’s new economy and some thoughts on its future high-quality development. Finally, I hope to study with you the speech of the General Secretary, “Correctly understanding and grasping the major theoretical and practical issues of China’s development”, published in the magazine Seeking Truth last month, in which two points particularly struck me and I would like to share them with you as guidelines we should always keep in mind in our future investments. The first point is to focus on the direction of common prosperity. Common prosperity is the essential requirement of socialism with Chinese characteristics, and we should look for entrepreneurial opportunities that create universal value in our investments.

The second point is the General Secretary’s discussion of capital. Marx and Engels did not encounter the problem of capital on a large scale back then, and the establishment of a socialist market economy was the result of the Chinese Communist Party leading the country to “cross the river by feeling the stones” and figuring it out. The most essential characteristic of capital is the pursuit of profit, which is engraved in the DNA of capital. However, in China, capital must grasp two principles: first, it must closely combine its own return on investment with the interests of the country, and actively play its function as a factor of production; second, it must not pursue its own interests in a way that runs counter to the long-term interests of the country and the well-being of the people.

Therefore, the next twenty years of China’s new economy also brings an era of opportunity for our investment industry. If we can grasp the opportunities of the times and bring value to the big picture of high-quality development, we can make a difference in the new era and also contribute to the healthy development of the socialist market economy.

The above is what I shared, as investors, we roll up our sleeves and do our best to play the “second half” of China’s high-quality economic development.

Thank you all!

This article is a transcript of a speech given by the author at the 2022 Global Venture Capital Conference hosted by Qingdao Municipal People’s Government on June 10-11, reprinted from, personal sharing is welcome, please contact the copyright holder for media reprint.


  1. Sounds like a plan – a good one, for China – methinks a good one for the US, too – starts with making “capital” subordinate to “the long-term interests of the country and the well-being of the people.”

    What a refreshing change that would be …

    1. That’s the key difference between China and USA-led Western financial capitalism. The purpose of any capital endeavour must not only NOT bring harm to the country and the well-being of the people (this is the basic role of all governments to ensure this), but to actively bring benefits to the country and the well being of the people (this is China’s model, capital must be for the long term collective good). USA on the other hand, consistently sacrifice its people for the interests of capital, resulting in the rich getting richer and middle class people getting “used up” and thrown aside to be replaced by new cheaper immigrants. USA’s model is inherently unstable, and while previously the level of technology “uses up” people slower, the current technological advances has increased the rate, leading to fractures in society.

    2. The US US never going.tomdo anything good for the benefit.if the masses.This.fascist headed country only serves thr powerfull and rich.That will.never change.

    3. Yes it would be a novel experience. Unfortunately for China, it is as utterly riddled with corruption as the United States.

      For myself I will be surprised if we make it past the next two years without global catastrophe. I think long term planning in the existing global dynamic, is very problematic.

  2. “Common prosperity” is a fraud. Right away, official commentators hemmed it in with explanations that it did not mean equality, that it must not encourage laziness, that it means opportunity of upward mobility as much as it means anything, and that philanthropy must play a big role instead of depending on government. Anyway, after lots of publicity for the slogan in the autumn and winter of 2021, “common prosperity” has largely faded from view.

    Li Shimer, apparently a finance capitalist executive, knows how to mouth a slogan. That’s all.

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