Focusing on the China Opportunities

"The Chinese have gained achievements in only 20 years which would take many other countries two centuries to accomplish."
---James Wolfensohn
World Bank President.

We believe that the emergence and growth of the Chinese economy is the single most important economic phenomena of the 21st century. Already the second largest economy on a purchasing power parity basis, and with nearly 8% GDP growth per year since 1980, China is expected to become the largest economy in the world by 2030.

What differentiate us from most hedge fund mangers exploring the China market is that not only do we speak the language fluently and have deep understanding of the culture, we also have had hands-on experiences running businesses in China. Consequently, we have developed deep insights and unique perspectives on the local business practices, importance of intricate relationship-building, subtle but different management / workforce characteristics, and uniquely Chinese consumer behavior and market-economy. All these factors are not easily reflected and appreciated by simply analyzing a Chinese company's public financial statements alone. With our background, insight, and connections in China, investment opportunities related to this mega trend certainly will be one of the main focuses of Adaptive Fund, LP.


  • China is the world's second largest economy on a purchasing power parity basis ($7.262 trillion  - 2004 est.)
  • GDP growth for 2004 according to official data was 9.1%. The government has a goal to double GDP by 2020. To achieve this, China needs an average annual growth rate of 7 percent, which several prominent analysts believe is attainable.
  • Economy is powered by a population of 1.3 billion people with household savings rate of more than 40 percent, one of the highest in the world. As incomes rise, newly empowered consumers represent an enormous market potential.
  • Foreign investment remains a strong element in China's remarkable economic growth. Over the last ten years, $400 billion to $500 billion in foreign direct investment has flowed into the country, more than the rest of Asia combined. The inflow of foreign investment brings with it new business practices, which inject vitality to the old economic system.
  • China's December 2001 accession into the World Trade Organization (WTO) is expediting economic reforms and expected to contribute 1 to 2 percent of gross domestic product (GDP) each year.
  • China's currency, the Yuan, also known as the renminbi (RMB), previously pegged at 8.28 to the US dollar since mid 1997, has been reformed starting July 21,2005 by moving into a managed floating exchange rate regime  based on market supply and demand with reference to a basket of currencies. Although the Yuan has been revalued upward against the dollar by only 2.1%, the new policy offers greater flexibility since China is still under great pressure from its trading partners to further revalue upward.  Further revaluation of Yuan is good news for Chinese asset holder. Most analysts believe the Yuan is still substantially undervalued.
  • China has benefited from a huge expansion in computer Internet use, with 94 million users at the end of 2004. In addition, about 4 million mobile phones are sold in China each month, the world's biggest market with over 300 million subscribers. That's just 23 percent of the population and sales in the last two years have increased 17 percent.
  • China's stock market commands 9th position in world market capitalization. That the Chinese markets are only 10 years old whereas the other stock markets in the top 10 are over 100 years old means that the Chinese markets have much more room for growth and can potentially learn from the mistakes others have made in the past.
  • Beijing will host the 2008 Olympic Games. Analysts estimate that preparations for, and staging of, the event will require an investment of US $34 billion, create 700,000 jobs, and contribute US $170 billion to the output of the economy. In addition, the extra international attention will minimize political risk.

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