SummerAtlanticJointVentureChina-The ChineseMarketSimplified

SummerAtlanticCapitalwasfoundedinJuly2018bySebright Chen, with a vision to use investment management as a tool to enable and accelerate the next generation industrial revolution. We focus on the deep technology and healthcare sectors, with a principle of doing business for good and a long-term growth perspective.

OUR VIEWS:

1. DEEP TECHNOLOGY

The broad global technology sector has reached a critical juncture in recent years. From 1990 to 2010, the technology industry was largely shaped by the “internet”. From 2000 to 2010, the internet-related ecosystem boomed, and the revenuemodelofmostoftheunicornsandtechnologygiants that emerged during this period was based on internetbased advertising sales. From 2010 to 2020, the expansion of the internet ecosystem along with AI, blockchain and IoT will become the main tune of the technology industry.

2. HEALTHCARE:

the biotech bubble has burst globally, with new technologies adding value to the next generation of healthcare. However, there are some regional differences. Here are some of the most representative areas:

• The Americas and Europe: The industry continues to flourish, with some overvalued companies facing funding and commercialization challenges.

• Asia: There is a wave of overseas market exploration in Asia, with more biotech companies starting clinical trials in different countries around the world to diversify their market exposure.

Global Economy And Recession

Covid has had an impact on the global economy and triggered the bursting of bubbles. Although many economic indicators raised red flags in 2019, the market still reacted emotionally in both private and public markets. Although there are undervalued companies for a variety of reasons, overvalued companies share similar characteristics: for example, overvalued companies tend to be venture capitalbacked, more willing to take on risky projects, aggressive in their advertising, and have rapid growth data with negative profit margins. Many investors tend to follow the trend of the past and invest in companies that are indeed significantly overvalued. As the cycle rolls on, the overvalued companies become more overvalued, and the undervalued companies become more undervalued. Due to the depression of the market environment and the relatively poor market performance, LPs became cautious, this created barriers for management companies to raise capital, management companies generally experienced low returns. As a result, some management companies have become shortterm oriented, offering tough terms to start-ups instead of nurturing them. LPs demand higher returns and GPs want higher management fees. As a result, more GPs want to raise larger funds to achieve this goal without planning strategy in advance, and lack the ability to protect against downside riskwithoutsufficientunderstandingoftheindustriesinwhich they invest, leading to the failure of many venture capital firms worldwide. Ethical issues have also contributed to the occurrence of large-scale failure in the VC community. However,itisnotonlyventurecapitalfirmsthathavefailedin this game - countless LPs, banks and startups have also lost the game as it is an ecosystem.

GLOBAL RECESSION:

Some analysts believe that the market will pick up later this year.However,webelievethattheglobaleconomicrecession will last longer than expected, at least until mid-2024, as the effects of the bankruptcy of some major banks are still being felt in various sectors. Global recession in selected representative regions:

US:

The unemployment rate in the United States peaks at 14.7% in April 2020 due to Covid, but returns to normal by the end of 2022. GDP fell in 2020 due to Covid, but generally recovered from 2021 onwards. This does not mean we can ignoretheriskofapotentialfinancialcrisis.Theimpactofthe bursting bubble and economic recession was mainly on the healthcare and technology industries, and the banking crisis in 2022 is still penetrating.

GREATER CHINA:

We believe the Greater China region will grow with shortterm volatility. China’s unemployment rate has increased dramatically from 2018 to 2023 with ongoing high degree volatility.SimilartotheUS,COVIDhasnegativelyimpactedthe economy,butitisnottheendofthestory.Theunemployment ratehasalreadyrisentoaveryhighlevelin2018,andbubbles in many industries started to burst even before the Covid. In the property industry, for example, the average net debt-toequity ratio of China’s top 80 property companies will rise to 152%bythesecondquarterof2022,almostdoubletheratioin mid-2020, according to a study by the Chinese Academy of Social Sciences. The interesting fact is that from 2018 to 2023, China’s real GDP will fluctuate rather than decline. Here, we would like to use the word “fake prosperity” to describe this situation. In fact, in 2020 and 2021, more than 4 million small businessesinChinawereshutdownannually.Thereareabout 40 million small businesses in China, they account for half of China’s tax revenue, 60 percent of its GDP and 80 percent of urban employment. The ecosystem associated with them hasproducedGDP,butitisnotsustainable.However,Chinais still one of the largest markets in the world and its consumer power is highly beneficial to many global companies.

FUTURE OUTLOOK: IMPORTANCE OF BUSINESS ETHICS AND ESG FOR SUSTAINABLE SUCCESS

Historywillnottellusdirectlywhattodo,butitcanalwaysgive us indicators of how to do better. Past bubbles and financial crisesweremainlyduetothegapbetweentherealeconomy and the capital or political economy, and this gap is due to greed in different perspectives without ethical behavior. The top management teams of many global companies are more focused on short-term profits than on the long term. Avaricious behavior dominated the global market and led to unethical actions without long-term view, therefore economic crisis happened repeatedly, all participants lose in the long term. As described above, the implementation of ESG guidelines and ethical standards is crucial to guide market behavior and gradually influence the context to a better economy to sustain long-term success.