China Fast Emerging As the Poster Child for PE Investment

by Ankit on August 18th, 2011

There is no doubting China’s dominance in the world today. Despite all the debate on China being a “closed” economy and the fact that China is known for “cheap electronic goods”, the dragon economy exerts its supremacy in a lot of ways and is a global power to reckon with.

Image Credit: asiasociety.org

If the overall economic prowess was not enough, China is now being sought after by venture capitalists, private equity players and angel investors alike as they seek a footing into the fastest growing economies of the world.

In a recent survey conducted of 59 investment firms by Venture Source, there was an almost unanimous response in favor of the opportunities that lie in China. Here are some interesting highlights from the survey:

More than 50% of all surveyed firms intend to open an office in China in the next five years. In addition, 60% of the survey respondents who already have a presence in China are looking to add more staff and/or expand to more cities in China
37.7% of the respondents expect venture capital investments in China to increase significantly whereas another 49.1% expect a ‘slight increase’ in VC investment. What this means is that majority (~90%) believe that China is full of opportunities and VC’s are bullish on China

A lot of interest in emerging economies like China, India could be attributed to the worsening financial climate in the US and Europe. To add to China’s positioning as an opportunity market, multiple factors are working in its favor

English language knowledge is fast spreading in China thanks to outsourcing market growth in China. The language familiarity makes it easier for global players to consider approaching the market
China like India boasts of the biggest domestic markets that to a large extent remain unexploited. As the consumer purchasing power increases, a lot many companies will need to be created to meet this domestic demand. So, VCs investing in China could think of generating handsome returns even if their portfolio companies don’t go global but do rather well in the domestic market itself

However, despite all that is good with China it is not a matured market like the US. VC’s might have to revisit their investment models by understanding the market dynamics in China. Only time will tell how China fares for the VC community but for now, it sure is an opportunity goldmine for investors

Ankit Agarwal is an IT Research and Strategy Executive by profession and a passionate blogger. He writes about personal finance & investments at www.gettingmoneywise.com and also loves tweeting (@ankit_a)

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