We will usher in the biggest tech bubble in Chinese history

Against the background of Sino-US confrontation, technology blockade, and national system, we will usher in the largest technology bubble in Chinese history.

A few days ago, Zhang Wei, Chairman of Cornerstone Capital, put forward the above conclusion at the “Cornerstone Class for All-Huawei Management” held by Cornerstone Capital.

Zhang Wei reviewed the history of the Nasdaq technology stock bubble and pointed out that the survival rate of technology companies listed between 1999 and 2001 was only 6.8%, but those great companies that survived changed the way of life of all mankind and improved the the well-being of all mankind.

He said that objectively, bubbles are of positive significance for promoting technological revolution and national economic development. In modern history, real prosperity often comes after bubbles burst. To a certain extent, bubbles are the way for us to move forward.

Zhang Wei suggested that since bubbles are inevitable, regulators should face up to and pay attention to bubbles, promote the continuous reform of China’s capital market, and strengthen the crackdown on illegal acts, in order to guide and use the positive side of bubbles as much as possible to promote technological progress and economic growth , and at the same time, reduce the adverse effects of the bubble and protect the interests of investors.

He also reminded the majority of investors that they should be vigilant as soon as possible and refuse to follow venture capital investments and hot spots.

1. The survival rate of IPO companies at the peak of the Nasdaq bubble is only 7%. What is the significance of the bubble?

From the beginning of 1995 to March 10, 2000, the Nasdaq rose from 743 points to a peak of 5132 points, an increase of 590%. During this period, an average of 200 technology companies listed in the United States each year. Although most of them are of poor quality, they are still highly sought after, with an average first-day increase of 50%. At the peak of the bubble, in just one year in 1999, the United States created 250 new billionaires and tens of thousands of new millionaires.

After the bubble burst, the Nasdaq fell 78% in 19 months, bottoming at 1108; the Internet stock index fell more than 95%. Amazon, Apple, Netflix, Intel and other giants were all spared, and the most even fell by 90% of their market value.

By the end of 2002, 50% of companies that went public in 1995-2000 had disappeared, and 72% were trading below their IPO price. By the end of 2019, of the 899 technology companies that went public between 1999 and 2001, only 61 were still in existence, with a survival rate of only 6.8%.

After the bubble, the vast majority of companies are dead, what is the point of the bubble?

3 companies are enough to illustrate the problem.

First, Netscape.

The listing of Netscape was the beginning of the myth of Nasdaq’s technology wealth.

On August 9, 1995, Netscape’s IPO on Nasdaq, the stock price rose from $28 to $58.25 that day, and the company’s market value reached $2.1 billion. Netscape founder Jim Clark’s shares were worth $663 million on the day of the IPO; another founder, Mark Anderson, was worth $58 million when he was 24 years old and had just graduated from college; Netscape’s early days Employees are also worth millions of dollars. In December 1995, Netscape’s stock price reached $171 a share, six times its IPO price.

This is not the first time Nasdaq has staged a wealth legend. Bill Gates has long become a wealth icon in people’s hearts, but the story of Netscape is completely new.

One is that its growth rate is amazing. It only took 16 months from establishment to listing, while Microsoft took 11 years. The Wall Street Journal also sighed: “It took General Dynamics 43 years to become a $2.7 billion company, and Netscape only took about a minute.”

Second, Netscape was not yet profitable at the time, with a cumulative loss of $12.78 million since its establishment. According to past success, a new technology company is best to consider an IPO after at least four consecutive quarters of profitability, but Netscape’s success has subverted Wall Street’s imagination.

So Netscape’s listing really ignited the “Silicon Valley Dream”. As Netscape CEO Jim Barksdale said, “Netscape’s IPO led to a lot of things. Technologists became interested in these new technologies, and businessmen were excited by the profits they could bring. These young The upstarts made other people follow suit and they thought, ‘If these little guys can make a lot of money, so can I’”.

For the dream of getting rich overnight, a large number of talents and venture capital poured into Silicon Valley. Between 1995 and 2000, about 172,000 high-tech jobs were created in Silicon Valley. In 1994, US venture capital investment was only US$38.43 billion, accounting for 0.053% of US GDP; when it reached its peak in 2000, it was US$99.0976 billion, accounting for 0.97% of GDP. Among them, the amount of venture capital invested in the Internet field increased from $707 million to $76.984 billion, an increase of more than 100 times; the amount invested in Silicon Valley increased from $998 million to $31.755 billion, an increase of 30 times. Such a huge talent and capital, its power can be imagined!

As Bill Gates said in 1999 when answering a reporter’s question about the bubbles at the time, “Of course they were bubbles, but you didn’t ask the point. The bubbles brought a lot of new capital to the Internet industry, which is bound to go faster. to drive innovation”.

After Netscape, the capital market accepted a new valuation model, which was based on maximizing long-term corporate value rather than maximizing short-term profits. The business model of technology companies has also changed, and “rapid growth”, ignoring and even pursuing losses has become the bible of Internet companies.

Second, Amazon.

Amazon, now recognized as a great company, was seen as a poster child for the dot-com bubble at the time.

Amazon was founded in 1995 and listed on the Nasdaq two years later, but it has never been profitable, with a loss of $720 million in 1999, and an even bigger loss in 2000, $1.41 billion, with a cumulative debt of $2 billion.

If from an industry perspective, there was no bubble, Amazon would have gone bankrupt long ago. The mainstream view at the time also thought so. “The New York Times” said that “Amazon is a company with a market value of 20 billion US dollars and 2,100 employees built on a bubble that can’t be thinner.” Named “The Most Overvalued Company on the Market”. They think that Barnes & Noble (the largest brick-and-mortar bookstore in the US) will destroy Amazon completely, mocking Amazon as “Amazon.toast” “Amazon.bomb” “Amazon.org” (Amazon will never be profitable, should use a non-profit domain name).

In a way, they were right, Amazon lost more than 90% of its market value at one point when the bubble burst. After all, no one could have imagined that Amazon would invent the e-reader Kindle, launch the Prime membership program, create the cloud computing platform AWS, produce original TV and movie shows…

But because of the bubble, Bezos was able to “make investment decisions based on long-term market leadership, not short-term profits and Wall Street’s short-term reaction,” and Amazon was able to quickly build infrastructure and seize market share by “burning money.” Even after the bubble burst, the financing at the top of the bubble left Amazon with $1.1 billion in cash at the end of 2000, ensuring that it could stick to its strategy and continue to drive innovation at the bottom.

Third, Tesla.

Tesla can burn more money than Amazon. It lost 17 years after its establishment, and lost a total of more than 7 billion US dollars. But it is such a company that has never achieved an annual profit. No matter before or after its listing, it has been highly supported by the capital market. Recently, its market value has exceeded 250 billion US dollars, ranking among the top 10 Nasdaq market capitalization.

So Musk himself was very grateful, saying, “I just want to say thank you to customers and investors. You gave Tesla a chance to cross the long night. Without you, we wouldn’t be where we are today.” Without the capital market’s high recognition of innovation from 0 to 1, Tesla would not be where it is today.

So just from these three companies, we can see that without the huge wealth effect brought about by the bubble, there would not have been so many talents and capital entering the industry, and there would not have been “the greatest legal It will be difficult for great companies like Amazon and Tesla to emerge, and it will not be possible to grow so fast even if there is no “collapse of the middle way”.

A CCTV reporter asked me a question when interviewing me last year, saying that the GEM is now 10 years old, and there are deceptive listed companies like LeTV and Baofengyingyin on the GEM. What do you think is the significance of the GEM?

I say you have to look upside down, not upside down. By the way, what is the company with the largest market capitalization? Mindray Medical and Wen’s shares. These two companies have the rudiments of great companies, and without the GEM policy, they would not be able to go public. These companies are the significance of the ChiNext, not the fraudulent companies seen in reverse. “Although the bubble will stimulate the emergence of many unethical behaviors, the high-speed growth they bring is inherently ethical.”

So what is the point of bubbles?

Most companies disappeared in the bubble, but those that remained changed the face of the world profoundly. Today, the top ten companies in Nasdaq’s market capitalization account for about 40% of the total market capitalization. Apple, Microsoft, Amazon, Facebook, Google, Intel, NVIDIA, Adobe, PAYPAL, Tesla, these 10 companies have changed the whole The way of life of human beings improves the well-being of all human beings.

Caption: The top 10 companies by market capitalization on Nasdaq have changed the way of life of all mankind, improved the well-being of all mankind, and led human society to complete the third industrial revolution.

2. No bubbles, no prosperity

The technology stock bubble is not an isolated case. In fact, every technological revolution in modern history is accompanied by a huge financial bubble. During the Industrial Revolution, there was canal fever, and there was railway fever in the age of steam and railways. These bubbles and their causes The real boom came after the recession.

The five technological revolutions have all experienced financial bubbles

Source: Carlota Perez, Technological Revolutions and Financial Capital, Cornerstone Capital


Economist Carlota Perez wrote a book called Technological Revolutions and Financial Capital, which studies the relationship between the technological revolution and financial bubbles, and finds that financial bubbles are an indispensable part of the technological revolution and are of great significance to the promotion of the technological revolution.

Because every technological revolution is an explosive development of new products, new industries and new infrastructure, it means that a new “economic-technical paradigm” replaces the old “economic-technical paradigm”, such as the era of the Industrial Revolution established Paradigms such as industrial production and mechanization, and the information technology revolution have established paradigms such as information-intensive economy, knowledge economy, and globalization. When the train was created, the horse-drawn carriage was eliminated, and when the textile factory was established, the home cloth was eliminated.

Yet the old paradigm is known to be so ingrained that there is not enough force to shake it at all. Therefore, in this process, the frenetic financial bubble played this key role. It used huge wealth effect to attract all the resources of the whole society, and gathered it into a tsunami of innovation, and completed this in a destructive way. a revolution.

For example, the most typical infrastructure construction, the bubble attracts enough funds for infrastructure construction, paving the way for innovation based on these infrastructures, so the full boom can only be ushered in after the bubble.

During the second technological revolution, there was a railway boom in Britain. Between 1844 and 1847, the total approved railway mileage reached 9,500 miles, and the capital budget reached 250 million pounds. In 1847, railway investment accounted for 6.7% of GDP. For reference, Britain’s GDP in 1845 was only £59 million, and today’s railways are less than 11,000 miles. Not all of these railways were built, of course, eventually adding up to 4,600 miles in the 1940s, but they are still the backbone of the UK rail network to this day.

So did the dotcom bubble. Between 1996 and 2001, telecommunications companies laid 80.2 million miles of fiber-optic cable in the United States, 20 times the actual demand in 2001. In 2004, bandwidth costs fell by more than 90 percent. Inexpensive and abundant broadband networks paved the way for the spread of the Internet. In 1995, only 14 percent of U.S. adults were online; by 2013, that figure had reached 85 percent. This has also cultivated the soil for the vigorous development of Internet companies in the future, especially the streaming media sites and social networking sites such as YouTube and Facebook that require a lot of bandwidth. If we go forward step by step, it will be many years later.

Like people’s understanding of new technologies, the role and significance of new infrastructure were unimaginable at the time. After all, “what’s the role of a newborn baby”? People started building railroads just to transport coal, and didn’t think it would play such an important role in transporting passengers and goods; when the Internet was just born, people only expected to use it to send and receive mail, and they didn’t expect it to penetrate to every aspect of our lives. It is the over-investment and talent gathering caused by the bubble, which has been completed in the past century and has greatly accelerated the development of history.

3. The bubble is our way forward

Finally back to China.

In the past two years, China-US relations have undergone subversive changes. It can be said that it has reached the lowest point after Nixon’s visit to China. China and the United States have changed from cooperation to confrontation, and the technological blockade will inevitably intensify.

Therefore, in the face of Sino-US competition, China has responded, and the most important countermeasure is the reform of the capital market, that is, the launch of the Science and Technology Innovation Board. This response will usher in a huge investment frenzy.

In fact, this is also “learning from foreigners’ skills” – the United States has won a great victory in the US-Japan trade war, and Nasdaq has played a major role. The Plaza Accord only curbed Japan’s development. What really allowed the United States to completely leave Japan behind was the prosperity of the new economy led by the information technology industry in the 1990s, and Nasdaq played a key role in this.

In 1995, Japan’s GDP was still 71% of that of the United States, and its per capita GDP was 1.5 times that of the United States, but in 2001, Japan’s GDP was only 41% of that of the United States.

Nasdaq introduced capital into the high-tech field, opening up direct financing channels for technology companies. Nasdaq attracts the listing of technology companies through institutional design. After obtaining financing, technology companies accelerate the pace of development, which enhances the confidence of investors, thereby increasing investment in Nasdaq-listed companies and start-ups. Continue to move forward with the support of the company… The cycle is repeated, the wealth effect is getting bigger and bigger, financing is getting easier and simpler, and technology companies are developing faster and faster… Finally, the capital market has a bubble, but after the bubble burst, there are perfect infrastructure, advanced technology and leading global technology companies in various fields. This is the logical relationship between Nasdaq and the development of American technology companies.

Therefore, the launch of the Science and Technology Innovation Board and the registration system is a great practice of “asymmetric competition” in China. The launch of the Science and Technology Innovation Board repeats at the institutional level the Chinese government’s idea of ​​selectively supporting domestic telecom operators and equipment manufacturers to become bigger and stronger during 2000-2010, focusing on supporting the development of small and medium-sized enterprises in the domestic hard technology field, and helping these enterprises to alleviate the early stage of development The problem of lack of funds and the opportunity for continuous growth.

Most of the science and technology fields supported by the positioning of the Science and Technology Innovation Board are traditional science and technology fields with a huge gap between China and the West, such as high-end manufacturing, biomedicine, new materials, etc. These traditional hard technology fields with a huge gap between China and the West have been very difficult in the past: difficult Obtain loan support from banks; small scale and no large-scale profits cannot be listed in China, which makes most investment institutions reluctant to actively invest; once listed overseas, due to the huge scale gap compared with competitors in mature markets, it is impossible to obtain overseas capital markets. With no valuation premium and no liquidity, it is almost impossible to truly form financing. Therefore, the Science and Technology Innovation Board has brought these companies such a blessing.

The Science and Technology Innovation Board is an important measure for the “national system” to tackle key core technologies. An example is enough to show that: SMIC’s return to A shares took only 18 days from acceptance to the meeting, and the market value after the new listing was 15 times that of the previous one. We have seen that the first anniversary of the Science and Technology Innovation Board reflects unprecedented height and inclusiveness. Loss-making companies can be listed, red-chip companies can be listed, and companies with different rights in the same share can also be listed. This is a great change in the Chinese market. After so many decades, the capital market has finally come to the right track.

Of course, we are definitely not advocating bubbles, but since bubbles have to come, we can only choose to deal with them better, as Ba Shusong said, “Since bubbles have become a part or a whole situation that often occurs in real market operations Instead of avoiding bubbles and being hostile to bubbles, it is better to face bubbles, analyze the objective laws of the operation of bubble economy, and promote bubbles to make positive contributions to technological and economic growth, and to improve investors’ market experience and improve supervision. “. Since the bubble is doomed, we as ordinary investors should be vigilant as soon as possible, refusing to follow the venture capital investment and chasing hot spots. At the same time, regulators with greater capabilities have to shoulder more missions.

We should support and encourage domestic regulators to actively promote the continuous reform of China’s capital market, especially using the capital market to provide more efficient direct financing to support our enterprises to gradually form core competitiveness through long-term accumulation.

On the other hand, we must implement a stricter delisting system, strengthen information disclosure, severely crack down on those who commit fraud, and use the might of thunder to drive out those black sheep, protect the interests of investors, and allow the capital market to optimize resources. The configuration function works better.

Just imagine, if we don’t have a science and technology board, you are a Musk-level entrepreneur who founded a company like Tesla, and you will find that your company will not be able to go public for at least 17 years after its establishment. For you, instead of struggling with hard technology for 17 years and struggling on the brink of bankruptcy, why not engage in real estate? If you are an investor, why not go into real estate? If you’re top talent, why not go into real estate? In fact, in the past two decades, many technology companies have gone into real estate. If Musk just wanted to make money, he might have gone into real estate too.

Of course, we can all understand today’s general trend. Smart people’s money will definitely choose to invest in hard technology, medical and health care, large consumption, and these industries and enterprises that represent the future direction of China. Less smart people will join the ranks later, seeing smart people make money. But high-quality assets are limited after all, so bubbles are inevitable.

Let the market vote, let the market choose, and there will be bubbles in the process, but towering trees often grow from the ashes of fires.

Therefore, under the background of Sino-US confrontation, technology blockade, and national system, we will usher in the largest technology bubble in Chinese history, but——

The bubble is our way forward.

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