Why Chinese PE:
Post-Crisis Opportunity
The Chinese characters for crisis, “危机” mean both “danger” and “opportunity.”
- Undervalued: Just as investments made following the Asian Financial Crisis, investments made now and over the next 2-3 years will likely generate superior returns.
- RMB Appreciation: The era of “Chimerica,” where China lends and America borrows, is at an end. China will develop a domestic consumption base, and the renminbi will appreciate.
- Hedge against Exuberance: When the world recovers, China’s stock markets will once again overheat. Private equity, with its sober focus on fundamentals, long-term growth, and management reform, will be a welcome oasis.
Asia’s most attractive PE market
- Chinese PE is Maturing: Corporate governance is improving, legal and regulatory systems are becoming more transparent, and capital markets are deepening.
- Dominant in Asia: In 2008, China attracted the most PE investment of any Asian country, drawing 29% of Asian investment, and 33% of projects.
- Room for Growth: The world’s next “Barbarians at the Gate” will be in Mandarin. American PE accounts for 2.6% of GDP. In contrast, Chinese PE is a less than a sixth that, or 0.4%.
Categories of Chinese PE
Competitive Advantage
- Straightforward Deals: Limited leverage, little debt, often minority stakes.
- Complex Environment: Chinese PE offers high returns, but is fraught with legal, regulatory, and cultural complexity.
- Hometeam Advantage: Domestic Chinese PE firms have an advantage. Our Chinese identity simplifies approvals, avoids bureaucratic obstacles, and speeds the investment process. Government feels comfortable selling key state assets to domestic players at lower valuations.
