HONG KONG, Nov. 25, 2024 — On November 12th, Harvest Capital’s founding partner, Song Xiangqian, participated in a Beijing interview with Caixin. He stressed the importance of understanding economic cycles for accurate future predictions.

Established in 2007, Harvest Capital boasts nearly RMB 30 billion in cumulative funds and consistent recognition as a leading investment firm in China’s new consumer sector. Unlike trend-following investors, Harvest maintains a long-term focus on consumer goods, a sector often perceived as slow-moving with IPO challenges. Their commitment centers on supporting Chinese consumption, empowering domestic brands, and improving daily lives for ordinary citizens.

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

Song Xiangqian’s extensive experience in senior roles at firms like Everbright Securities and Guosen Securities provides a macro perspective on economic trends and policy shifts, shaping his focus on deep economic cycles. China’s consumer market has seen shifts from consumption upgrades to new consumption trends and now a period of slower growth. He explained that earlier phases were driven by fundamental human needs, but now, due to reduced demand and lower marginal consumption propensity, consumers prioritize affordable essentials over premium products.

While new consumer categories will continue to emerge, Song predicts less frequency than previously seen. Harvest’s investment strategy emphasizes “essential, high-frequency, and livelihood-related” products, resulting in a portfolio of numerous consumer brands and a prominent position as an investor in national brands. Harvest plans to refine its investment approach, prioritizing cost-effective consumer segments in the current economic environment.

Understanding China’s economy and consumer market, according to Song, requires exploring smaller cities and counties to grasp the needs of lower and middle-income consumers, as larger cities’ markets mature and county-level economies emerge as key growth drivers.

2. Finding Constants in a Changing Landscape

Harvest’s 2017 investment in Eastroc Beverage, which went public four years later as the “first functional beverage stock,” highlights their market understanding. Their support extended to market expansion and digital transformation. Their 2019 RMB 200 million investment in Lao Xiang Ji contributed to its growth as China’s largest Chinese fast-food chain by store count. Song notes the lack of global-scale chain giants in China’s catering market, attributing this to gaps in industrialization, standardization, and modernization, highlighting the importance of aligning stakeholder interests and maintaining strong management for scalability.

Considering China’s aging demographics, Harvest plans to focus more on youth-driven consumer segments, acknowledging the “silver economy’s” potential but lack of maturity. Their investment strategy centers on the enduring nature of basic human needs.

3. The Importance of Patient Capital

Song emphasizes that consumer and technology investments are not mutually exclusive. While acknowledging the current popularity of tech investments, he notes signs of overheating in the sector compared to the relative stability of consumer investments. Technological advancement requires sustained investment, and Harvest focuses on the consistent growth of company cash flows.

In his August Caixin article, “The Second Half of China’s Venture Capital Industry,” he discussed the shift toward a more meticulous, real-economy driven approach in China’s VC industry, moving away from narrative-driven fundraising. Harvest aims to transition from “Harvest Capital” to “Harvest Industries,” evolving from investor to industrialist, improving post-investment services and internal corporate management.

Ning Xiaoxin
ningxiaoxin@scharvestcap.com
+86 2151688285-817