VC/PE boom in China poses opportunities and risks

16:50, May 05, 2011      

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After 10 years of fast growth, venture capital (VC) and private equity (PE) funds are booming in China, posing growing opportunities and risks, top international VC/PE managers said Wednesday at the 6th China Venture Capital & Private Equity Forum here.

"Ten years ago, the VC and PE market (in China) was very small and limited, but today it has grown into a huge capital source for small and medium Chinese companies," Gavin Ni, founder and CEO of the leading Chinese VC/PE research firm Zero2IPO Group, told Xinhua.

According to Zero2IPO's data, the total VC/PE funds raised in China last year hit a record of 30 billion U.S. dollars, half of which were successfully injected into 1,200 companies from various industries. Among 776 Chinese companies that went to initial public offering last year, 221 were financed by VC/PE.

"Back in 2005, when Carlyle Group attempted to merge with Chinese manufacturer Xu Gong, a broad discussion was aroused in China. People knew little about PE funds at that time. Due to lack of knowledge, the Chinese refused to accept any capital from PE," Yale finance professor Chen Zhiwu said. "But now, almost every person I meet is talking about VC or PE. Such a big change in 6 years."

The market is still expanding. In the first quarter of this year, China's private equity funds have raised another 12 billion dollars. "It is the fastest pace," Ni said.

However, a big market with booming VC/PE funds inevitably carries the risk of a bubble. Yet how great the risk is remains debatable.

Ni saw no bubble at present. "There are more funds, which makes the competition more fierce. That is a challenge, because every fund wants to find the best investment choice. But that is not a bubble," Ni said, noting that the gross domestic product (GDP) ratio of total VC/PE funds is now 0.2 to 0.3 percent in China, far below the 2 or 3 percent in many developed countries.
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