Chinese PE players continue to go west

Since China's "Western Development" plan was established in 2000, the government has significantly increased its attention and investment into the central and western region, with an aim of fostering another magnet for both local and overseas capital.

Private equity definitely has a role to play in supporting the government's "Go West" policies. According to Bain and EUCCC, since 2009, more than half of all private equity investments in China have been committed in businesses which have headquarters in the western region, surpassing investments for companies based in the more developed coastal areas. Deal values in Tier-3 cities also grew dramatically from $1.2 billion in 2009 to $2.8 billion in 2010.

The report also pointed that PE-backed firms have outperformed their publicly-listed counterparts, achieving an average revenue growth of 21%. They also posted 7% higher profit growth than their publicly traded peers, achieving a compound annual growth rate of 21%, versus 14% for listed companies.

In addition, entrepreneurs often turn to PE firms for funding due to their limited access to capital, the report said. More than 80% of all private equity investments are used for expansion, and PE-backed companies are now spending twice as much on R&D than listed companies, which reflects the importance of the asset class as a means to sustain local innovation.

The joint research covers 131 PE-funded deals that took place from 2004 to 2008, representing 40% of deals valued at more than $20 million during that period. The majority of the companies surveyed are small- and mid-sized firms with revenues of less than RMB10 billion ($1.6 billion). The research added that private equity investment now accounts for 0.2% of China's GDP, compared to 0.5% in the US and 0.3% in Europe.

 

Source: Bain & Company, EUCCC

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• Topics
• Greater China
• Investments
• Bain Capital Asia
• China
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• Growth capital