Despite the ongoing credit crunch in U.S. and Europe, where private equities are finding it difficult to get the credit they need to fund their acquisitions, private equity market in China is doing great. In fact, it expanded in the second quarter with the total value of 33 disclosed projects reaching 2.56 billion U.S. dollars, up 10.7 percent against the first quarter.
The 33 private equity investments were made in 14 industries, among which manufacturing, energy and mining industries appeared more attractive.
According to Businessweek, the surge in private equity funds in China is supported by four pillars: “the continued optimism and growth of China’s middle class in spite of inflation and the global downturn, the increasing global competitiveness of domestic Chinese firms that need expertise and capital to expand internationally, the tightening of credit from Chinese banks, and the decline of China’s stock market” (stock market downtrend and the ongoing credit squeeze create great options and opportunities for private equity firms to provide capital and get more reasonable valuations).
China’s equity investments continue to develop rapidly. Only in fiscal ’02, the country’s total equity investments was $534 million, but it spiked in ’06 reaching $2.18 billion. From January to September of fiscal ’07, the investment of the private equity funds in Mainland China remained on the upward trend with the accumulative number of companies, in which investments were made, reaching 126 while the accumulative value of the investments totaled $8.37 billion, up 3.3% compared with the same period of previous year.
China has attracted an increasing number of private equity investments and dedicated funds because of its strong economic development. The country’s economy has grown at an average rate of 10% over the past 10 years. Additionally, the lower labor costs aspect and the increasing size of domestic markets continue to produced attractive opportunities for private equity funds.