• 1. China attracts 10% of global private equity investment
  2. After rapid growth, the Chinese market is now consolidating
  3. Private equity companies should look more closely at market peculiarities and regulations

Beijing, July 21, 2013

Private equity (PE) activities have increased substantially in the Chinese market over the past decade. PE funds invested in China rose to more than USD 15 billion in 2012, from below USD 1 billion in 2000. China now represents approximately 10% of global investment.

The reason for this rise is that the Chinese government sees private equity as a key tool for supporting SMEs which generate 60% of China's GDP, employ 80% of the Chinese workforce, and account for 70% of exports. Chinese authorities promote a triple role of PE funds to inject fresh capital into SMEs, support companies' internationalization and strengthen their business models. These are the findings of a study by Roland Berger Strategy Consultants, "What does the future hold for private equity in China?", published as part of the think: act CONTENT series.

However, the recent market and regulatory changes have increased uncertainty about the local PE environment (e.g. about the supervisory authority responsible and about national politics) and clouded prospects for investors in the Chinese market. Securing returns, especially through IPOs which were the most important selling option for private equity investors between 2000 and 2010, has become more challenging. Following the shutdown of IPOs since last autumn, some 900 companies are estimated to be waiting for permission to go public. PE funds are thus currently developing other exit channels such as trade sales.

Consolidation in the private equity market

Because of this new situation, experts at Roland Berger expect to see significant consolidation in the Chinese PE market: "The Chinese government is currently tightening up supervision in this regulatory phase to limit risk and boost the positive effects," explains Charles-Edouard Bouée, member of the Executive Committee and President of Roland Berger Strategy Consultants Asia. China aims to create a flexible regulatory model that will strengthen discipline and professional standards in the industry, while allowing provincial governments to tap the full economic potential of private equity activities.

However, the restructuring of the PE market in China will generate significant positive side-effects too: "This trend creates new opportunities for market players," Roland Berger Partner Wu Qi says. As the Roland Berger screening methodology also presents some growth segments, the Chinese PE market remains fundamentally attractive. "But to operate successfully in the market, PE companies have to target their activities more accurately now and bear in mind the specifics of the Chinese market."