Statement on Nikkei Asia article

An article by Nikkei Asia titled “Temasek halts China tech investments amid Beijing crackdown” included selective content from an interview with our Chief Investment Strategist Rohit Sipahimalani.

The article misrepresented Mr Sipahimalani’s comments and the context in which he made them, which was overall positive about investment opportunities in China and consistent with comments he made, which were reported, at the Pensions & Investment World Pensions Summit, in October.

He said that China would remain a focus for Temasek and highlighted areas like medical technology, biotech, electric vehicles, and renewable energy as high growth spaces in China that represented exciting opportunities. He said Temasek is adopting a more cautious stance in “the one area of internet platforms, where we will probably wait for regulatory clarity before we can deploy much more capital”.

We note that the original headline has been changed from “Temasek halts China tech investments amid Beijing crackdown” to “Temasek pauses China tech investments amid Beijing crackdown”. However, the headline is still factually inaccurate, as Mr Sipahimalani’s comments referred to “internet platforms” not “tech investments”. Temasek has continued to deploy capital into Chinese companies in the broader tech space.

We reproduce the transcript of the interview below, so readers can see for themselves what Mr Sipahimalani has said, and understand Temasek’s position on the issues raised, rather than rely on the erroneous interpretation by Nikkei.

Interview with Nikkei Asia; 10 November 2021, Singapore

Q: We have seen Temasek increase its stakes in China as of late. There is some concern over the China economy and the various crises that have been emerging from there, the real estate sector threatening to spill into other sectors. In the road ahead how are you adjusting your strategy to cope with all these risks that are coming out right now?

A: So I would say there are two types of risks to China. One is just a cyclical slowdown. I mean the whole slowdown in the property sector etc, that has partly been the result of counter cyclical measures by the government. You know they have been reducing leverage in the property sector since the past year, in line with policy. They don’t want a bubble, of sort, building up out there. In that process obviously there are some companies getting hurt but the PBOC has been very clear that they would do whatever it takes to make sure that there is no spillover or have any systemic effects, and the government has enough tools in its arsenal to do that. At the end of the day a lot of the slowdown is part of government policy. Government policy itself can be changed, if you want to sort-of reverse some of that. So the cyclical stuff, we have seen China goes through that every few years. It is nothing new. We will ride through that.

There is other stuff, such as regulatory risks around, for example, the internet platforms. If you look at the genesis, the things that the Chinese government wants to address, things like monopoly power of internet platforms. They want to address issues around data privacy. They want to address issues around income inequality. All things that governments around the world are trying to do; just that in China the way that is being executed is a little more blunt and quick, and that is why it has created a lot of shocks out there.

Now in that space I would say I would expect in the next few months to have regulatory clarity, and that would shape some winners and losers out there, and I think we will probably wait to deploy more capital till we have more regulatory clarity in that space.

But outside of that space, there are other spaces that we focus on in China in line with our global themes in terms of longer lifespans, in medtech, biotech, healthcare services that continue to be in line with government policy and continue to see a huge amount of opportunity, and we continue to invest out there. There are other areas around sustainability, whether it is looking at some of these novel materials, electric vehicles or that ecosystem, batteries, whether it is looking at solar panels, looking into components, both for the Chinese market or for globally.

All of those are very high growth areas which are supported by Chinese policy and where there are a lot of competitive companies. So again, we see no issues, we continue to focus on that. Similarly a lot of local Chinese brands are coming up, which are more digital, using a lot of consumer data to define their brand strategy you know companies like Genki Forest etc. I mean again, it’s not against government policy. So most of the areas we look at in China are continuing to be relevant for us, we continue to invest there. It is the one area of internet platforms where we will probably wait for regulatory clarity before we can deploy much more capital.

Q: What kind of regulatory clarity are you looking for exactly?

A: For example when we talk about data privacy. Let’s take a company like Didi. There is obviously an investigation going on there. What are the remedies that CAC expects Didi to perform to make sure it is compliant with whatever data concerns and privacy concerns that the Chinese government has?

Today, the concern that investors have is no one knows what it is that the companies need to do to comply. So therefore it is difficult to know whether they will be able to, or will they not be able to, and what the impact on the company will be. So then it becomes difficult to invest.

Once you know what are the rules, what you are expected to do, you can assess. This will have this impact on the business. You can have a view on valuation. So that is what I mean by regulatory clarity.

Or in terms of anti-monopoly. What do you mean, how are you going to define that? What restrictions are you going to put on companies? Right now you are asking Alibaba and Tencent to open their platforms to each other and the others. What else? I think this will happen over the next few months and I think once that happens, you can make a call then.

These internet platforms are not going away. Even China recognises the importance they play. President Xi Jinping talked about the importance of the digital economy in China. It creates millions of jobs. I don’t think anyone thinks it’s going to go away. But the framework, the rules under which they operate in may go through some changes and that may have an impact on value.

Q: Will you be making some divestments?

A: Look at this point, when there is very little clarity, these stocks have already corrected a lot. And when there is no clarity of the regulatory rule book, it is difficult to say, is this fair value or is it not fair value. So I rather be patient and wait to see what the rules are and then make a call on that basis. Just like it is difficult make an investment call, it is difficult to make a divestment call if you don’t know what the rules are going to be. And like I said, the companies that we are invested in are established players, they are not going to go away. It is a question about value, and a lot of them will adapt in the long run if they are good companies with good management.

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