9 Feb 2018
Vibrant outlook for Chinese Private Equity industry bolstered by a more comprehensive “Belt and Road Initiative” and emerging Guangdong-Hong Kong-Macau Bay Area
Grant Thornton’s latest Asia Private Equity Insight 2018 (The “Insight”) finds that Asian private equity (“PE”) industry shows optimism on PE-backed Merger and Acquisition (“M&A”) activities despite the slowdown of overall M&A activities following the record high achieved in 2015. While funding appears to be more accessible against the backdrop of a bullish stock market, China posed a new restriction on overseas acquisitions, hindering the outbound direct investments related particularly to the real estate and entertainment sectors. In addition to ongoing regulatory uncertainty, the rise of protectionism around the world and the “American First” foreign policy in the US are viewed as obstacles for cross-border investments made by Chinese companies. Nevertheless, Beijing’s global trade strategy, the “Belt and Road Initiative”, not only plays a momentous role boosting the Chinese and Asian economies at least over the medium term but also brings knock-on benefits to the Asian PE market.
“Belt and Road Initiative” hastens Chinese PE growth, “Guangdong-Hong Kong-Macau Bay Area” brings in advanced manufacturing industries
In 2017, global fundraising continued to boom, dry powder at PE firms remains high and valuation has gone up. Fund-raising activities are expected to remain robust for Chinese PEs in 2018, which have become one of the biggest beneficiaries of a prolonged easy monetary policy, with financial institutions, government-backed sector funds and state-owned enterprises continuing to be the leading fund sources.
Chinese PE industry has undergone a recovery of cross-border deals since 2H2017 and this trend is expected to continue given the imbalance of a supply and demand of qualified underlying targets in the domestic market, especially for opportunities that tie with the Belt and Road Initiative. The development of the Guangdong-Hong Kong-Macau Bay Area also opens up new horizons and plays an important role in building the Belt and Road Initiative to drive the growth of Chinese PE firms. Under China’s innovation-driven development strategy, the Bay Area is shaped as a cluster, which gathers international talents and resources, to cultivate the advanced manufacturing industries and support investment activities.
Barry Tong, National Head of Transaction Advisory Services at Grant Thornton, said, “The outlook for the Chinese PE industry shall remain vibrant in 2018, growth is expected to be generated from the innovative emergence of Chinese technology start-ups which are favoured by both venture capital as well as PE funds. There is also no sign of a slowdown in fundraising as new capital commitments to private equity are likely to remain positive in 2018.”
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