Listing in Toronto has become a major trend among Chinese enterprises. According to the Toronto Stock Exchange (TSX), the reasons for this are numerous, including access to capital, a nurturing environment for emerging companies, a strong equity culture, and lower overall costs for professional services compared to the United States, the U.K. and other locations. In addition, unlike the stringent demands for listing in the U.S. or the U.K., Toronto‘s liberal procedures are very attractive to Chinese multinationals looking for overseas investors.


In November 2008, Polo Biology Technology Co., Ltd. (Polo Biology), a subsidiary of the Polo Group, successfully listed on the TSX, becoming the 66th Chinese, or China-affiliated, company to list on the exchange (a number which includes only five biotech firms). In an interview with China Knowledge at Wharton, Miranda Liu, vice president of Polo Group, spoke about the advantages of the TSX, the challenges that come with international branding, and what’s on the horizon for the company. The interview was conducted by Daniel Turgel, a member of the Lauder class of 2010.


Below is an edited transcript of the conversation.

China Knowledge at Wharton: Recently, U.S. and China private equity have received a lot of attention in the financial world. Many private equity funds are increasingly trending towards establishing RMB funds — that is, Chinese currency funds. What is your opinion on this trend, and do you believe that the Chinese government wants to encourage more wholly foreign owned enterprises (WFOE) and foreign funds to establish RMB funds?

Miranda Liu: It is fund raising, and in China the government is currently still not allowing fund raising. [According to] the State Council Circular 10 — regarding our Chinese firms listing abroad, red chip IPOs or foreign enterprises coming to China and raising capital — raising capital is still under heavy control of the China Securities Regulatory Council. You could compare it to our enterprise: As an international organization moving towards North America, listing in Toronto has been a trying three-year experience, so we designed a special model and were finally able to exit. If you talk about raising funds in China, you should note that capital is abundant in China, but there are different customs regarding this for China and America. [In China,] we like to profit and we like to save. [In America,] your consumption awareness is so strong that money earned by the masses carries with it a sense of purpose and wealth, whereby you are always looking to buy funds and equities, then family investments. Thus, particularly after the onset of the Wall Street financial crisis, China’s business world took a deep breath, decided to pour money into real estate, and even finance, so a lot of people have to wait in the wings for opportunities. If there’s a good project, a good fund or a good product, the entrepreneurs will make a lot of money and then be willing to make strategic investments. Then you have to look at how to establish a bilateral legal policy that enables [foreign investors] to exit — this is a fascinating topic, and a prerequisite [for investing]. Because China is a controlled economy, and the U.S. is a free economy, the two countries’ economic systems are extremely different.

Thus, although we have cash in our pockets, it is supervised and controlled by the government. When Polo Biology listed in North America, having previously raised money domestically (approximately 100,000,000 RMB), we filed a significant amount of paperwork with the Chinese government, including filings at SAFE, and we succeeded in exchanging RMB into Canadian dollars and listing in Toronto. I thought the [filing procedures] were almost identical.

The biggest difference between the Chinese and American economies is in recruiting talent. In China, the economy pulls its management along, whereas in the United States, management dominates the economy. So now if China wants to make another economic leap, she must recruit more talent, and recruiting a lot of high-level talent with international strategic brand knowledge is the only way China’s economy can really compete in international branding; otherwise, we will always be small potatoes. So China is the type of model where the economy pulls management, a type of model that perpetually lacks talent, whereas developed countries today are set up such that management runs the economy. We can truly satisfy our talent needs; in fact we have as much [talent] as we need, but it is still a real problem…. We brought in good talent from multiple countries to join upper management — it did not matter whether they were in financial strategy or finance, they were all foreign. In our company, there are not less than ten foreigners. And for companies like mine, we needed ten…. Remember, if you have the talent, you have their creativity, but China is still really lacking in this arena.

China Knowledge at Wharton: Americans increasingly recognize Chinese brands and the branding that you just mentioned. For example, Americans are very familiar with the Haier brand. Americans in 2009 also saw the BYD automotive brand for the first time at the Detroit International Auto Show. If the branding of China has already begun, and even the first stage has already passed, then how do you think the second phase would look? What characteristics will it have?

Liu: It is the international globalization of markets. Right now, many of our products … are in China, fighting a type of guerilla warfare in every province. Many international organizations like ours also think that the whole world is stage for economic interaction. We hope that some of the localized [products] in China can spread to every global economic platform, import as well as export, which is exactly what we mean by interaction. This type of interaction can bring good foreign technology and brands…. Regarding their products, enterprises consistently tweak their dimensions and develop a series of products — for instance, our six major series’ of branded products. We also import technology products from Canada’s Institut Rosell and two Japanese concerns, and of course we have gone to the U.S. to look. If there are good products and business opportunities, including technology, then we will not let them go. As an enterprise, product-strategy integration is also an opportunity for future integration, and the integration of these products and opportunities depends on one thing – the market, which comes from looking out at the world, hence the reason we need to go out [into new markets].


China Knowledge at Wharton: Beyond branding, we have seen China’s role in Asia becoming larger and larger across industries. If China continues such a rapid development, which industries will it emphasize the most in Asia — is it auto, shipping, hi-tech? As you see it, which industry receives the most attention in China?


Liu: I think that every area has this aspect, including what we do, which is vitamin production in the biological sciences. I should add that now we are thinking outside of just Asia, in order to become the world’s largest manufacturer or seller [of vitamins]. The basis for wanting to be the world’s largest producer can be found in our technology. We integrated several of the world’s best technology companies, including Canada’s Rosell, with our Asian technologies from Japan. Regarding the market, I say the “largest” seller because China’s population is 1.3 billion, and we are supported by an enormous consumer market. Now, looking vertically across the country, even the whole world, every vitamin producer — all of our industry’s competitive enterprises — lack consumer markets this big.  The second part is that it is an opportunity to integrate technology. Despite China’s late rise, amid our high-end technology integration, our China research institutes and biological research centers, we were provided with an integrated technology R&D capability that ultimately could be leading the world. Thus in China, it does not matter if an enterprise is not in X industry or [using] today’s product model or competing with a certain entrepreneur’s thinking and strategy. If you want to be the best, you have to let your mind run free and think, acquire talent and knowledge, and then you will inevitably grow large. So my confidence in Polo Biology becoming the world’s largest manufacturer and seller is strong.


China Knowledge at Wharton: The next question is regarding innovation centers: Today, China’s innovation centers are Shanghai, Hong Kong, Shenzhen and Beijing. In the coming several years, as far as you can tell, will innovation centers spread to every province and every city, or will they continue to be concentrated in Beijing, Shanghai and the Guangdong area?


Liu: It is difficult to say, because innovation is both a strategy and a way of thinking. Whether it is Qinghua University or Beijing University-type, top-caliber schools providing supplemental training and education to those of us that are non-university trained employers, or our practical experience, we all have come to feel that innovation is our “survival capital.” You mentioned brands just now – entrepreneurs, including those at Polo, have a slogan: “Products are a company’s life; service is a company’s brand.” [People who] want to establish a certain brand without an understanding of innovation … will try to do the same as you but will have no way of executing. You just mentioned a few provincial capital cities; it’s possible with a strategy of innovation to [spread innovation] to a certain extent. Culture is without national or physical boundaries. As long as you [innovate], there will not be a lot of people [competing with you]; whether it’s a crowded space, or the absorption rate is high, culture is transmitted at a very high speed, which implies that strategy, brands, and innovation are a form of culture that is transmitted very quickly. Now, it is possible that a few large innovative enterprises are concentrating in the cities you just mentioned, but in reality they are everywhere in China. In China, whether the products are from enterprise associations or from Fortune 100 companies, there are really just a few innovative enterprises spreading all of China’s inspiration. If you do not have a concept of innovation, you will ultimately die off. That includes Polo, where we have participated in the China Fortune 100 Evaluation for the last three years in a row, ranking in the top five each year. Whether it is innovative science or innovative strategy, we intercommunicate while innovating … [and] we ultimately integrate and start the innovation process all over again. So, I believe that innovation is not simply a temporary strategy, but rather it is a strategic and integrative way of thinking whereby you are constantly refining and searching, all while implementing, and this is indispensable. Currently in China, in every provincial capital, in every area, in every industry, all that matters is the size of the steps taken toward innovation, that’s all; every day, every hour, every moment, every enterprise is looking for its development and survival in innovation.


China Knowledge at Wharton: China recently celebrated the 30-year anniversary of its Reform and Opening-up Policy. In the process of Reform and Opening up, we have seen China convert many state-owned enterprises (SOEs) into non-SOEs. As far as I understand, this process will continue to be refined. If we assume this process will continue, what will be the trends over the next 10 years?


Liu: The economy will definitely prosper. Because they are under certain constraints of the Communist Party, former central enterprises and SOEs sometimes cannot act freely. Privately held companies do what the boss says, and if the government helps us by standing guard, all of our courage will grow. In central enterprises and SOEs, if I am acting as the CEO, it is possible that everyone would rather be thinking about doing other things. Because the investors are their own people, and the government puts up the money, you have to ask approval from the government. From a process standpoint, the government is also a “person system” — a team where it is difficult to match opinions. It is especially frustrating when you try to get a department committee to move in sync. Thus, in order to stimulate “Open up and Reform,” SOEs have been purchased by privately held companies in the recent past.


That goes for Polo, too, where we pioneered with a miracle of sorts in August 2008, by buying an 85% stake in China Foods Company, becoming the dominant shareholder. At the time, it really shook the economic world, with lots of people calling us out. A magazine decried [the fact that] private companies are becoming directly involved, saying that this was too brazen. But I believe this type of phenomenon will spur a part of the economy, as once it becomes our private holding, we will think of a strategy of how to revive it – or, to quote a Chinese saying: One monk jumps into the water to drink, two monks carry water to drink, three monks have no water to drink. [Effectiveness can remain high with few or many people]. One person says it is enough; he digs for water and brings it forth from the ground – this is definitely very good for China. In the next ten years, if the government’s plans allow us the ability to merge and acquire enterprises, turn them around, then it will definitely produce a stunning “economic rainbow.”


China Knowledge at Wharton: The final question is regarding your company listing in Canada. When considering listing abroad, there are many options, for example: New York, London, Toronto and other international-grade cities and markets. So, when considering listing on an exchange, what are the most important aspects and characteristics for you? 

Liu: It is important to look at where your resources have an advantage.  Our strategy going forward in 2009 may be in packaging Shanda Group to list on NASDAQ in New York. The first step in the listing of an operating business in North America comes from America’s recent abrasiveness toward us — frankly speaking, they have really rejected China. Coming to America to set up a corporation and invest as compared to Canada is much more difficult. We set up a production line in Vancouver, Canada, mainly for servicing North America. When considering where to build it, we thought of Canada to develop the international market, so that if we were to list a portion there, our branding would be relatively quick. So, the first step revolves around where the business’ market is going, then following it with a piece of industrial capital to operate and spur product sales. If America were like Canada, and we could enter freely without any resistance, I think we would have come earlier. But American finance squeezes China too much, while I have not seen others squeeze China. So this year, under a unit of China Stone Group, we are preparing to list on NASDAQ. We have already done 60% to 70% of the preliminary work, establishing a base. The financial part of the economic crisis or recession — we really don’t fear it. We feel the crisis is an opportunity: We don’t fear it one bit, and have not stopped at all our work in listing this unit.