The decline in private equity deals in China has reached an alarming level. The ten largest global buyout firms have made only five new investments in the world's second-largest economy this year, predominantly involving smaller transactions. This marks a significant drop compared to the 30 investments these firms made in China in 2021.
China has been a roller coaster for investors, characterized by geopolitical tensions, regulatory unpredictability, and economic headwinds," said Kher Sheng Lee, Co-Head for the Asia-Pacific region at the Alternative Investment Management Association. While the country was previously seen as a growth market responsible for a veritable "gold rush," today's environment more closely resembles the painstaking "gold panning with a magnifying glass and tweezers," Lee added.
For many years, investors pushed into the Chinese market, lured by rapid growth and the prospect of high returns through IPOs in the USA. But since the turbulent IPO of the ride-hailing app Didi Chuxing in New York in 2021, Beijing has effectively closed the window for overseas IPOs, significantly limiting exit opportunities for investors.
Moreover, the weakening economic growth in China and planned US restrictions on private equity investments in certain Chinese technologies have further dampened investor interest. "Geopolitical restrictions, such as regulations on foreign investments, are increasingly making China a difficult investment market despite its opportunities," commented Han Lin, China Country Director at the consulting firm The Asia Group.
According to data from Dealogic, which includes the ten largest private equity groups of the last decade, seven of these firms have yet to make any new investments in China this year. Among the few active investors were Bain and Advent, which invested in companies such as Shanghai-based VNU Exhibitions Asia and Chinese pet food manufacturer Seek Pet Food. Blackstone, once one of the most well-known foreign players in China, has not completed a significant private equity deal in the country since 2021, aside from a smaller proposed deal this year.
While the global private equity industry as a whole suffers from rising interest rates that make the debt-driven business model more expensive, the decline in transactions has been particularly pronounced in China.
The significant reduction in investments in China reflects the growing uncertainties faced by foreign investors. Despite attractive valuations and the demand for growth capital, many leading private equity firms currently deem the risk too high, which is markedly dampening the once booming engagement in the region.
