Rare Interview: Neil Shen (Sequoia China) and Stephen Schwarzman (Blackstone) Part I

Yesterday, I came across a live discussion between Neil Shen (Founder of Venture Capital firm Sequoia Capital China and #1 on the Forbes Midas List in 2018, 2019, and 2020) and Stephen Schwarzman (Founder and CEO of private equity firm The Blackstone Group). In this wide-ranging conversation, these two giants of their respective fields discuss everything from China’s economy and the impact of COVID-19 to the core traits an entrepreneur should have and what to look for when hiring.

No recording, but I’m sharing my transcription for easy consumption.

In this section, the pair discuss a series of macro themes, including COVID’s impact on China’s and the world’s economies, globalization, returning to work, supply chains, and what sectors are ripe for investment and innovation.

This is Part 1 of 4. Part 2 will be posted tomorrow, and cover entrepreneurship in a world of uncertainty.

For more fun stuff, you can follow me on twitter @kgao1412. And definitely check out my compilations page.

Part I: The World After COVID-19: Where Are Our Economies Headed?

4/23/2020

Neil Shen: Hi! I’m Neil Shen, steward of Sequoia Capital. I’m excited to be joined by Steve Schwarzman, Chairman, CEO, and co-Founder of Blackstone, one of the world’s leading investment firms. Steve’s New York Times best-selling book, “What It Takes: Lessons in the Pursuit of Excellency” which draws on his experience in business, philanthropy, and public service has just been translated and published in China by [China publisher]. I look forward to discussing some of the lessons from his book, as well as his views and tips on managing businesses and investing in the current economic environment.

Stephen Schwarzman: Hi Neil, how are you.

Neil Shen: Good! Good evening from Hong Kong. So maybe we should start from, talk about the general economic landscape. Steve, what should we do to help the global economy regain its growth, and people to regain their confidence after this pandemic?

Well the situation we are now seeing, economically, is unprecedented. Countries, everywhere around the world, have asked their economies to be shut so that they can control the spread of the virus. Now, it’s time — much like China has controlled the virus — to restart the economies. So, I think a few things are necessary.

The first, is people are sometimes scared of going back to work, for fear they will catch the virus from someone else. Particularly in the West now, and China may be through this stage, is that what we need is mass testing. If you know the person to your left, and the person to your right, does not have a problem, then you know you will not get the virus. So, I think there’s going to be enormous effort to make sure the testing is dramatically increased. If it is, people will come back to work much faster instead of recovery being very very slow. You will have a much faster recovery. People will also have much more confidence, and they will be able to go back to their normal life. So I think that testing is very important.

Also, because the West is behind China, in terms of recovery, that in the West at least, breakthroughs in medicine to treat the disease have finally a vaccine, which will probably be available in a year to year and a half. And so for the world itself, if you look out a year to year and a half, people should not be scared at all. They should go back to work. The recovery will not be smooth, because not all parts of an economy go to work at exactly the same time, with the same success. The more we can accelerate that, the better the world is going to be.

China is already in a different phase. China has done a very strong job with the virus. But this morning, US time at least, China reported that its economy in the first quarter went down 6.7%. This is the first time in anybody’s records that the Chinese economy has gone down. And so one should look at that as a bottom, and a great opportunity for growth in the future in China.

Neil Shen: A couple countries are planning to move their production and supply chain back home. What do you think about this? Is this a sign that the world is going against globalization? What’s your take on where the world should be headed.

Stephen Schwarzman: I don’t think it’s a globalization statement, per se. I think what happened, is that a lot of companies have experienced a severe dislocation in terms of its ability to get goods, from China in particular, because China is the manufacturing capital of the world. I had one CEO, somebody in the fashion industry, who said, “100% of my supply comes from China, and I can’t get anything. I’m going to go out of business because I can’t get any merchandise.”

So once you experience that kind of situation, and it doesn’t have to do with government directives, a normal businessperson would say, “I can’t leave myself exposed to any place, doesn’t matter what the name of the country is. I need to have a more diversified supply chain.” And I think that that lesson was learned around the world, and it didn’t have to be directed at China.

It could be other countries that shut its borders, which happened for the first time in, certainly in my lifetime, other than a world war, where you couldn’t get goods from other places. This is the first time. So what that meant, is that it woke up almost every businessperson to at least evaluate what their supply chain is. Now, what I think may happen, is rather than remove existing operations, growth may go to locations that are closer. Because different businesspeople say, “I just don’t want to be as concentrated in any one country.”

Neil Shen: So basically, you are suggesting that both the industry as well as the countries, all should try to optimize their supply chain, and to avoid, obviously, too much of a concentration. That’s not always to the best benefit of the country and industry.  

Stephen Schwarzman: Yes, I think so. But it will still be the super-competitive countries, like China, in an advantaged position. The only question will be, “How much of the supply chain will they get in the future?” Of course, there are countries that have moved manufacturing facilities to China for Chinese consumption. And China will come out of this downturn from the virus, probably as the strongest growing country in the world. So China has natural advantages for its own economy as it continues to internalize it.

Neil Shen: Agreed. I think clearly that there is still a lot of great advantages for the industries in China in many ways.

Stephen Schwarzman: In terms of China itself, you’re one of the top experts in the world in terms of looking for investment opportunities there. What do you see, in terms of industries that you think would be interesting now and areas of the country? So I can learn a little about that.

Neil Shen: Oh, thank you. You guys have also been very active in China. I’ve been investing in China for the last 15 years, and have seen several cycles of ups and downs. Many leading companies came out of such tough times, because they become even stronger players in their respective sectors. They take advantage of the “dark moments” and make many effective moves in gaining more market share.

And I think it’s the same for the investors. The current environment actually provides some great opportunities for us to back those long-distance champions in different industries. If there’s any sort of successful formula for us in the last 10, 15 years in China, it’s because we consistently long China. And obviously now, its probably time to double down on China in many sectors. And I think there are many, obviously, attractive investment themes in China. Probably the most important ones are around technology and innovation.  

Digital technologies, as you know, include Internet, AI, IoT, transforming many service and manufacturing industries in China. And the recent coronavirus might actually accelerate some of those transformation processes.

And in China, clearly, the public health system will be further upgraded. The healthcare industry, will enjoy higher growth as investment from both the private and public sector will increase. It’s going to include vaccines, innovative drugs, medical devices, [hospitalities?], etc. We’re going to see quite some new areas of innovation and growth in the broader healthcare area.

Stephen Schwarzman: I was thinking about this myself, because I know I was going to ask you that question. I agree that technology and healthcare are going to be really sort of precarious.

This is Part 1 of 4. Part 2 will be posted tomorrow, and cover entrepreneurship in a world of uncertainty.

For more fun stuff, you can follow me on twitter @kgao1412. And definitely check out my compilations page.

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