China investors plan to step up activity – AVCJ Forum

While accepting that the market remains clouded by uncertainty and COVID-19 policies will likely continue to move back and forth, a drop in valuations has made China very attractive.

“Most Chinese equities are trading at a substantial discount to their counterparts in the US, Europe or even in emerging markets like India and Southeast Asia," said Max Hui, a managing director in the private equity unit at CDH Investments.

"Our view is that the current valuation level does not reflect the longer-term fundamentals of China’s economy on an absolute or relative basis compared to other economies. I think this is actually a good time for us to increase our pace of investment, which has been slow in the past few years." 

Tony Jiang, a co-founder and partner at Ocean Link, added that 2023 would likely be a busy year based on his current deal pipeline. He said that activity had stepped up not only because of relaxations in COVID-19-related restrictions but also because entrepreneurs feel they must move on from the recent Communist Party congress regardless of how they feel about the outcome.

Jiang also pointed to a dilemma often experienced by GPs: When fundraising was easy in recent years, managers struggled to find good deals at reasonable valuations; now, though, attractive deals are plentiful but fundraising is difficult.

“I think the market has changed a lot. Two years ago, part of your life was going after the hottest company in the most aggressive way begging the entrepreneurs for a piece of the allocation," he said.

"There was very little room to negotiate on valuations and very little respect for investors. Fundraising was relatively easy, but then doing deals was actually very difficult and to some extent pretty scary. Today, I think it's almost the opposite."

Mengyang Yang, an executive director and head of Hong Kong private equity at CICC Capital, observed that the pessimism about China exhibited by many investors is not justified.

“I think it is more momentum-driven than fundamentals-driven. We can't emphasize enough that actually development is still the top priority under the new paradigm,” said Yang.

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