Song Xiangqian: Understanding China Economy Cycles to Predict the Future

HONG KONG, Nov. 12, 2024 /PRNewswire/ -- Recently, Song Xiangqian, founder of Harvest Capital, emphasized in an interview with Caixin that understanding cyclical changes deeply is crucial for predicting the future.

1. "Consumer Goods Are Not Fast-Moving but Have Cyclical Resilience"

Before founding Harvest Capital, Song Xiangqian accumulated extensive experience in the securities industry, holding senior positions at various financial institutions such as Everbright Securities and Guosen Securities. This background has provided him with a broad macro perspective and keen insight into economic trends and policy adjustments. Throughout his career, he has consistently focused on profound economic cycle changes.

Over the past decade, China's consumer market has undergone multiple transitions—from consumption upgrades to the wave of new consumption, and now to the current phase of consumption downgrades. Song Xiangqian explained that the emergence of consumption upgrades and new consumption was driven by human needs, aligning with Maslow's hierarchy of needs. In recent years, however, due to insufficient effective demand and declining marginal consumption propensity, people have gradually shifted to affordable daily essentials, moving away from a preference for premium consumption among the middle class.

Song Xiangqian predicts that while consumption upgrades and new consumer categories will continue to emerge in China's market, they will not be as frequent as in the past. Since its inception, Harvest Capital has adhered to an investment philosophy centered on "essential, high-frequency, and livelihood-related" products. This trend-aligned strategy has enabled Harvest to develop a portfolio with numerous consumer brands, positioning itself as a prominent investor in national brands.

In today's macroeconomic climate, Song Xiangqian revealed that Harvest Capital will continue to optimize its investment strategy, with a sharper focus on cost-effective consumer categories to remain in sync with the current economic cycle.

Song Xiangqian believes that to fully understand China's economy and consumer market, one must venture into smaller cities and counties to grasp the needs of low- and middle-income consumers. As the consumption markets in first- and second-tier cities become saturated, the rise of county-level economies is becoming a new driver of consumer growth.

2. Finding Constants in a Changing Landscape

In 2017, Harvest Capital strategically invested in Eastroc Beverage. Four years later, Eastroc went public on the Shanghai Stock Exchange, hailed as the "first functional beverage stock." This investment not only yielded significant returns but also demonstrated Harvest's market insight in the consumer sector. Harvest supported Eastroc in expanding its market coverage and implementing digital transformation, enhancing the brand's capabilities.

Harvest also invested RMB 200 million yuan in 2019 in Lao Xiang Ji, helping it grow into China's largest Chinese fast-food chain by store count. Despite the vast size of China's catering market, there have long been no chain giants comparable to McDonald's or Starbucks globally. Song Xiangqian believes that China still has gaps in "industrialization, standardization, and modernization." Achieving chain scalability requires aligning stakeholders' interests and retaining strong management.

As China's demographic structure ages, consumption patterns will shift accordingly. Song Xiangqian stated that Harvest Capital will increasingly focus on youth-driven consumer groups, even though the "silver economy" (targeting elderly consumers) holds great potential but lacks market maturity. Harvest's investment strategy will continue to seek constancy amid changing fundamentals of human needs.

3. The Importance of Patient Capital

In recent years, Song Xiangqian has repeatedly stressed that consumer and tech investments are not mutually exclusive. Although tech investments are currently in high demand, he pointed out signs of overheating in the tech sector, while consumer investments have remained relatively calm. Technological advancement requires sustained, systematic investment, and Harvest Capital believes that the key to economic growth lies in the steady growth of companies' cash flows.

In his August article on Caixin, "The Second Half of China's Venture Capital Industry," Song Xiangqian noted that China's VC industry has entered a more meticulous, real-economy-driven era, moving away from a fundraising model based solely on storytelling. Going forward, Harvest Capital aims to further transition from "Harvest Capital" to "Harvest Industries," as Song Xiangqian hopes to evolve from investor to industrialist, advancing post-investment services and corporate management within the firm.

About Harvest Capital

Founded in 2007, Harvest Capital is a professional fund committed to value investing with a focus on China's consumer and service sectors. It is one of the few value-creating funds in China with the ability to make industrial investments, treating investment as an industry in its own right. The fund's total assets under management exceed RMB 29 billion. Supporting Chinese consumption and empowering national brands is at the core of Harvest's mission.

Representative investment cases include Jinmailang, Xiaocaiyuan, Eastroc  Beverage, Qiaqia Food, Jiajia Food, Laiyifen, Xiao Guan Tea, Aimer, ORG Technology, Babi Food, Home Original Chicken, Wenheyou, Taikang, Easyhome, Boloni,  Carpoly, Yenova Decoration, Newpearl Group, Meitu, Meituan, Didi, and more.

source: Harvest Capital