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21st Century Business Herald reporter Shen Junhan reports from Beijing

"We are optimistic about the Chinese economy in the long term and will invest in the Chinese market in the long term. Our investment in the Chinese market has continued over the past year." Wu Yibing, chairman of Temasek China, said in an exclusive interview with a reporter from 21st Century Business Herald recently.

Temasek, which has been investing in China for 20 years, is one of the largest institutional investors in the Chinese market. From investing in the banking industry when it arrived in China in early 2004, to investing in China's Internet and new economy in 2010, to investing in China's energy transformation, life sciences and other fields with original innovation advantages in recent years, Temasek's investment strategy has been dynamically adjusted with the development of the Chinese market.

In 2020, Temasek's investment portfolio in China accounted for as much as 29%, marking the first time that China's asset allocation surpassed Singapore's, becoming its largest market. However, in recent years, due to multiple factors including the poor performance of China's capital market, the value of Temasek's Chinese assets has also shrunk slightly.

Temasek's latest 2024 annual report shows that in the fiscal year ending March 31, 2024, the net value of Temasek's investment portfolio is S$389 billion, an increase of S$7 billion from the previous fiscal year. Among them, assets in China account for 19% of Temasek's investment portfolio, lower than 22% in the Americas and 27% in Singapore. This is the first time in nearly a decade that Temasek's Chinese investment portfolio exposure is lower than that in the Americas.

"The changes in our investment proportion in various regional markets are actually lower than the changes in the secondary market indexes of various markets." Wu Yibing explained to 21st Century Business Herald. In the past fiscal year, the MSCI China Index fell by 17% (including dividends and bonuses), and the MSCI US Index rose by 30% (including dividends and bonuses). However, the decline in the proportion of Temasek's investment portfolio in China was lower than the decline in the index, which shows that Temasek's investment portfolio performance is still resilient.

At this stage, what investment opportunities does Temasek see in the Chinese market? What investment signals does Temasek Capital, a wholly-owned subsidiary that will be established in Shanghai in the second half of 2023, send? At the same time, at a time when the due diligence exemption mechanism of state-owned venture capital institutions is being hotly debated in the market, what experience can Temasek, as a state-owned investment company in Singapore, learn from?

Continue to invest in China: At this stage, we focus on areas of comparative advantage such as energy transformation and life sciences

It is understood that Temasek is in line with the four major structural trends of digitalization, sustainable living, new consumption in the future and longer life expectancy. In the past year, it has invested S$26 billion in areas such as technology, financial services, sustainable development, consumption and healthcare.

From a regional perspective, Temasek continues to advance its global investment pace based on its foothold in Singapore. Outside of Singapore, the United States continues to be Temasek's main investment destination, followed by India and Europe. In addition, Temasek has also increased its investment activities in Japan.

Investments in the US and Indian markets have been the main contributors to Temasek's performance in recent years. Temasek pointed out in its annual report that the growth of its investment portfolio in the past fiscal year "came mainly from returns in the US and Indian markets, offsetting the impact of the poor performance of China's capital market."

Although the Chinese market has performed poorly, Temasek continues to invest in the Chinese market. 21st Century Business Herald noted that in recent years, Temasek has invested in Chinese companies such as Nali New Materials, Via Biotech, and BYD.

"I think foreign investors recognize the potential of the Chinese market. Even investors who are not in China today will undoubtedly pay attention to the Chinese market. Because China is one of the largest markets in the world, it is a market that cannot be abandoned." Wu Yibing said. However, foreign investors are currently relatively cautious about the Chinese market, mainly due to geopolitical factors, economic confidence, lack of wealth effect and other factors.

Looking back at Temasek's investment history in China, Wu Yibing told 21st Century Business Herald that it has gone through three stages. The first stage was when it entered China in the early 2000s, mainly investing in the banking industry with economic indicators. The second stage was from 2010, with the rise of China's Internet, Temasek also invested in some unicorn companies. Especially after 2015, Temasek invested in some relatively leading companies in China's new economy, which are mainly concentrated in three sub-sectors - mobile Internet, new energy, and life sciences.

In recent years, Temasek's investment in China has entered the third stage. "We have seen the further improvement of Chinese companies' innovation capabilities and their penetration into multiple industries. China's comparative advantage has changed from the traditional labor and manufacturing-based to R&D (scientific research and experimental development). The strength of the manufacturing industry and the real economy has been brought about by R&D and IP (intellectual property), which is a point we attach great importance to," said Wu Yibing.

For example, in terms of energy transformation, electric vehicles, lithium batteries, solar cells, and downstream applications of power grids, which are China's "new three" exports, are areas in which China is in a leading position and has R&D capabilities.

In the field of life sciences, Temasek has been investing in the field of life sciences in China since 2015. The team observed that China's innovative drug research and development was originally based on rapid follow-up imitative innovation, and then Chinese pharmaceutical companies began to make real original drugs. Now the latest obvious trend is that many Chinese pharmaceutical companies are licensing innovations to other countries, which is a reflection of China's R&D advantages in the field of life sciences.

In the AI ​​big model field which has been very hot in the past two years, in March this year, there was news that Temasek was discussing investing in OpenAI. In the Chinese market, what is Temasek's investment mentality towards AI big model companies?

"I think artificial intelligence technology is a revolutionary technology like the Internet and mobile Internet, and its application will generate great value," said Wu Yibing. In the field of AI big models, Temasek pays more attention to its future applications rather than its current use as a tool. Although there are relatively successful companies such as OpenAI in the world, the development of big models is still in a very early stage, and its commercial application direction is not very clear. Therefore, Temasek's investment strategy is to closely track applications that can be transformed into commercial value.

Dismantling Temasek’s model experience: Becoming a fully market-oriented state-owned investment company

Temasek not only continues to invest in new projects in China, but also brings its subsidiaries to China. In October last year, Temasek's wholly-owned subsidiary Temasek Capital settled in Shanghai, causing quite a stir in the industry.

Wu Yibing is also a director of Tan Ming Capital and a member of the investment committee. Talking about the new moves made by Tan Ming Capital, he said that Tan Ming Capital and Temasek are in a joint investment relationship, but from the perspective of funding sources, Temasek has historically only managed its own funds, while Tan Ming Capital's funding sources are more diversified.

It is understood that Danming Capital operates independently and raises funds independently. Its first fund, True Light Fund I, has raised US$3.3 billion (RMB 24 billion), attracting global investors including sovereign wealth funds, foundations, financial institutions and family offices.

"We are optimistic about China's economy in the long term and have been investing in the Chinese market for a long time. Compared with many foreign investors, we have relatively more experience in investing in China and have a better understanding of the next growth of the Chinese economy. Therefore, when many global investors do not know how to invest in China, they will choose to participate in Danming Capital's new fund as LPs," said Wu Yibing.

Temasek is well-known in the Chinese market, not only because it is a foreign institutional investor with rich experience, but also because, at a time when state-owned venture capital institutions are becoming the main force in China's venture capital market, Temasek is a platform that state-owned venture capital institutions in various places hope to benchmark against. "Beijing version of Temasek" and "Shanghai version of Temasek" have become a title in news reports that places high hopes on the local state-owned venture capital forces.

It is worth noting that the lack of market-oriented incentive mechanisms and fault-tolerance mechanisms has become one of the main institutional obstacles to the development of China's state-owned venture capital. The recently released "Seventeen Measures for Venture Capital" pointed out that "it is necessary to improve the state-owned venture capital management system and due diligence and compliance responsibility exemption mechanism that conform to the characteristics and development laws of the venture capital industry, and explore the assessment of state-owned venture capital institutions according to the entire fund life cycle."

When state-owned venture capital institutions began to improve their management systems and due diligence exemption mechanisms, what experience did Temasek have to share? In this regard, Wu Yibing said: "Investment requires taking risks and allowing failures. This is true when investing as an individual and when managing a large company. If the risk appetite is very low, how can you do venture capital? Especially for early-stage venture capital, the failure rate is definitely higher than the success rate. The more you care about one city or one pool, the lower the return rate of the portfolio may be. As for Temasek, we focus on the overall growth of the investment portfolio."

Temasek’s annual report also mentions the following risk-return preference principles: We will not tolerate any risk that may damage Temasek’s reputation and credit; we focus on long-term performance; we have the flexibility to make concentrated and large investments; we maintain a resilient balance sheet; we assess the possibility of sustained long-term losses in the value of the overall portfolio and conduct resilience tests on different scenarios.

At the same time, Wu Yibing emphasized that Temasek is a state-owned investment company in Singapore and also a fully market-oriented investment institution. The mechanism is to be fully market-oriented and respect market rules. Specifically, first, as far as early venture capital is concerned, most of the invested companies may die. Second, only the top 25% of funds make money, and the LP of the fund also has a greater chance of losing money than making money. The national team LP should also be aware of this when making investments.

"Local governments expect to support industries through fund investment and achieve a certain return on investment. This requires excellent fund managers with management and investment experience. Such fund managers can only be trained in actual combat," said Wu Yibing.