Check the chart: China’s PE market on pace for disappointing year

Private equity funding in China


What’s happening:
China’s private equity, where investors and funds invest directly in private companies or participate in corporate buyouts, are taking a hit amid the Sino-US tariff tit-for-tat and an effort by China to lower its debt levels, causing a decline in available capital in the market. Reuters reported that China-based funds have raised $21 billion in the past eight months compared to $130 billion in 2017, breaking a three-year growth streak. “I won’t be surprised that it’s lower than last year’s,” Myron Zhu, co-head of private equity in Asia Pacific at Aberdeen Standard Investments, told FM magazine.

Why this matters: In Asia’s biggest private equity market, these China-based funds back major investments and buyouts in the Asia-Pacific region. A slowdown in fundraising will affect private companies’ funding plans and investors’ exit options, especially in the internet and IT sectors, which have historically received the bulk of private capital. Further, Zhu said this could likely lead to revaluations of companies that investors consider expensive. This will be beneficial for new investments into stable companies, as they become more attractive to investors and are seen as safer options. But challenging times are ahead for startups that are “still burning a lot of cash to expand and prove their business models”, Zhu added.

Additional reporting by Alexis See Tho, an FM magazine senior editor based in Kuala Lumpur. To comment on this article or to suggest an idea for another article, contact her at Alexis.SeeTho@aicpa-cima.com.