Private equity investment in China reaches record http://today.reuters.com/news/articleinvesting.aspx?type=fundsNews2&storyID=2006-12-06T113203Z_01_SHA296922_RTRIDST_0_PRIVATEEQUITY-CHINA.XML
Wed Dec 6, 2006
SHANGHAI, Dec 6 (Reuters) - Private equity and venture capital investment in China hit records this year, according to a research report released on Wednesday, as foreign investors flock to the world's fourth-largest economy.
Local and international venture capital funds invested a total of $1.7 billion in China from January to November, a record and a near-60 percent increase over all of 2005, according to venture capital consultancy firm Zero2IPO.
Private equity firms have invested a total of $11.8 billion in 111 projects in China in the Jan-Nov period, also a record, said Beijing-based Zero2IPO Holdings Inc.
The new records come as foreign firms such as Wall Street investment bank Goldman Sachs (GS.N: Quote, Profile , Research) and U.S. buyout firm Carlyle Group [CYL.UL] rush to China to cash in on the country's breakneck economic growth of 10 percent a year.
Sixty-eight private equity firms have made investments in China from January to November, making China the most active private equity sector in Asia excluding Japan, according to the Zero2IPO report.
Total investment in China proposed by private equity firms is expected to account for more than 1 percent of the country's economic growth this year, the report said.
"Foreign venture capital and private equity are still the major players in the market, but the number of local investors is growing this year," said Gavin Ni, Zero2IPO's founder and CEO.
Foreign funds accounted for more than 80 percent of such transactions so far this year and the uptrend was expected to continue next year, Ni said.
Venture capital has focused on small- and medium-sized Chinese companies at the start-up and growth stages, while private equity may chase bigger deals such as the $21.9 billion Hong Kong- and Shanghai- listings of Industrial & Commercial Bank of China (1398.HK: Quote, Profile , Research)(601398.SS: Quote, Profile , Research) in October, the world's largest ever IPO.
However, venture capital and private equity firms still face many regulatory challenges in China, which may discourage some potential global investors, Zero2IPO said.
Many buyout firms have complained that the going is especially tough in China, where private equity-owned companies are not allowed to go public on its domestic A-share stock market -- eliminating what is a key avenue for investment exits in other countries.
Also, private equity falls into a regulatory grey area in China, where the government is still drafting rules to clarify its legal status.
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