China’s Private Equity, Venture Capital Markets Boom Despite Economic Slowdown

China’s private equity and venture capital markets are accelerating despite a slowdown in economic growth.

Fundraising and investment hit record levels in the world’s second largest economy last year, according to PwC’s China Private Equity/Venture Capital Review and 2017 Outlook. A total $72.5 billion was raised in renminbi and U.S. dollars in 2016, up 49 percent from 2015, the PwC report shows.

“Traditional PE and VC fundraising was dominated by RMB for the first time, with a plethora of mid-small RMB funds raising money for domestic investing and A-share related activities and exits,” says Ni Qing, a PwC China Private Equity Group audit partner based in Beijing.

The volume of private equity and venture capital-led merger and acquisition deals in China rose steadily to reach $223 billion last year, a 66 percent increase year-on-year, even as global deal volume fell 38 percent. Chinese bankers completed 1,767 deals last year, up from 1,063 a year earlier.

“The strong growth was driven by the participation of ‘Big Asset Management’ investors who dominated the list of large transactions,” says Nelson Lou, a PwC advisory leader based in Beijing. Offshore merger activity of Chinese private equity and venture capital funds has risen dramatically, Lou says, with a total 195 deals announced in 2016. That’s more than double the 95 seen a year earlier.

In terms of deal volume, technology remained private equity’s most favored sector in 2016, with 417 investments. The second most popular was manufacturing, which saw 335 deals. Dealmakers also invested in 189 real-estate companies, 145 consumer companies and 105 financial companies.

Initial public offerings remained the primary way investors exited their deals, with a total 165 IPOs last year, a 38.7 percent increase over 2015.

Amanda Zhang, the North China leader of PwC’s China Private Equity Group, expects growth in private equity and venture capital will continue this year.

“As the pressure to invest large sums of available funds increases, we expect an increase in PE/VC led M&A activities,” Zhang says, adding that a constraining factor will be exits as there is a long queue for public listings on Mainland exchanges. Chinese private equity investors, however, still tend to prefer Mainland listings as valuations tend to be higher than those listed offshore, either in Hong Kong elsewhere, Zhang says.