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Issue Brief: Private Equity in China: Injecting Equity into Entrepreneurial Growth

Issue Brief: Private Equity in China: Injecting Equity into Entrepreneurial Growth

Posted on Monday 23rd December 2013

The emergence of a vibrant PE industry in China demonstrates that there is an alternative channel of new investments for financing Asia's transformation from an old industrial base to a new green economy model.

Chinese private equity (PE) funds have emerged as an important force in the country's industrial transformation. There are now an estimated 6,000 PE funds registered in China, managing RMB 2 trillion (US$325 billion) of funds, representing 15 per cent of the US$2 trillion of assets under management (AUM) by PE firms globally. In contrast to earlier years when funding was mostly raised in US dollars, the bulk of new PE funds raised in the last three years has been RMB-based. In 2012, 344 PE funds raised a total of US$18.1 billion in new funds denominated in RMB, whereas 15 foreign-currency PE funds raised US$7.2 billion.

The emergence of a vibrant PE industry in China demonstrates that there is an alternative channel of new investments for financing Asia's transformation from an old industrial base to a new green economy model of higher energy efficiency, lower pollution and more knowledge-based service structure.

A robust PE industry in Asia will require putting into place the building blocks that will make them competitive on a global scale:

  • Size is an advantage in the PE industry because buyout deals are getting larger and call for higher injection of capital and ability to raise higher amounts of debt.
  • Specialization is becoming necessary to give PE firms a competitive edge.
  • As Asian corporations begin to move into foreign direct investment, local PE firms will have the opportunity to enter into partnership with larger foreign PE companies.
  • It is important to have higher standards of public disclosure and transparency of fund operations and performance for industry credibility.
  • The success of the PE industry will depend on its value creation in helping screen companies of good quality and growth potential, and supporting the restructuring of Asian industries into the high growth era.

The views expressed in this report are those of the author and do not necessarily reflect those of the Fung Global Institute. The author is solely responsible for any errors or omissions.


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