At the elegant Italian restaurant Cipriani in Hong Kong, I sat across from William Shen, senior partner at Headland Capital, to hear what he has to say to China Money Network about investing in China's consumer industry.
He should know. For nearly two decades, he has studied, consulted and invested in the Chinese consumer sector. In 2007, he led investment into Yonghui Superstores Co. Ltd, a regional Chinese supermarket chain, and helped grow the company to its successful Shanghai listing in 2010.
The Chinese consumers are still consuming, he assured me. Retail sales are still growing at a double-digit rate, and that is generating new opportunities for investors.
Shen said he's actively looking to invest in luxury automotive 4S dealerships in China. The 4S dealership network penetration in the country, especially in the lower tier cities, is much less compared to mature markets. Plus, luxury car sales, as a percentage of total Chinese car sales, are also lower.
Other private equity firms saw the opportunity as well, if not earlier. In 2008, General Atlantic invested in Zhongsheng Group, a Beijing-based Chinese auto dealership chain of luxury and mid-to-high-end brands. The company IPOed on the Hong Kong Stock Exchange in 2010, affording a partial exit for its private equity backer. By the end of 2012, Zhongsheng had a dealership network of over 150 stores across China.
In 2010, KKR invested in Rundong Automobile Group, a Jiangsu Province-based company operating more than 50 4S dealerships in China's eastern region with brands such as BMW and Land Rover.
Sure, Headland's potential investment in this sector might come three years later than KKR. But Shen believes there is plenty of opportunities to make money as Chinese drivers upgrade to better luxury cars.
"Unless you don't believe that the Chinese consumers will be able to afford and purchase more luxury cars, then the whole thesis falls apart," says Shen. "But we are a firm believer that they will."
Listen to our half hour-long conversation in audio format or read a Q&A transcript here.
