China cross-border plays require resourcefulness – AVCJ Forum

Speakers at the AVCJ Forum were generally bullish on international private equity deal making, despite growing concerns of a more defensive stance in the US regarding Chinese investment. This outlook was supported by the argument that protectionist politics in the US are not impeding the signing of international trade pacts, as well as the view that global cross-border opportunity was mostly a question of leveraging growth within China.

"Generally speaking, we have not faced any difficulties putting money into China," said Chong Min Lee, founder and managing partner at CMIA Capital Partners. "There is a process that you have to go through, but it's not a significant barrier. On the other hand, because we have Chinese LPs, we do find that there are more difficult foreign exchange controls on getting Chinese money out."

Lee highlighted a recent CMIA investment in the luxury goods industry as an example of how certain sectors can be targeted globally without risk of regulatory restriction. He also described a recent investment in a Muslim app as having an inherent cross-border component due to the international nature of the user base. CMIA has been able to leverage the app's presence in Indonesia as a way of engaging the local government about potentially expanding activities in the country.

James Ieong, chairman and managing partner at Pagoda Investment, said that although capital controls in China would likely remain a hurdle, his firm was able to work around the issue by coordinating investment platforms in different currencies. This strategy includes acquiring foreign companies via a US dollar-denominated fund and helping them expand in China with a renminbi vehicle.

Ieong also emphasized the importance of customizing such transactions by maintaining communication with all the relevant stakeholders in both countries. "Combining different types of resources and acquiring local knowledge are some of the keys to successful cross-border and international transactions," he said. "No two cases are the same, so it's really important to find out what the key factors are and how you're going to deal with them."

Geopolitical flashpoints related to China were also noted as having an impact on deal flow, but dismissed as a sporadically relevant factor that could be mitigated by PE-led countermeasures.

A recent South Korean cosmetics investment by CDIB Capital International was offered as a case in point. The company's sales initially stalled in the critical Chinese market due to travel restrictions connected to political tension around the Korean missile defense program. However, an arrangement brokered by the GP with a China-based manufacturer is now expected to rebound product distribution in the country.

Hamilton Tang, CDIB's managing director, also downplayed the impact of political tensions between China and Taiwan. This position was put in the context of the firm's "China-plus" strategy, which aims to hedge China-related challenges through creative cross-border plays in the consumer, services and manufacturing sectors.

"Taiwan represents a perfect entry point into China, particularly in the advanced manufacturing space," Tang said. "We see so many opportunities in Taiwanese expats developing skills in Taiwan, graduating to a much bigger playground in China, upping their game and really disrupting regional duopolies and oligopolies in specific spaces where the Japanese and Koreans dominate."

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics