Venture capital and private equity firms are transforming enterprises in China by exposing them to innovative practices and enabling them to tap into the global commercial and capital markets. In 2004, venture investing in China exceeded a record $1.2 billion, following a three-year downturn.1 Much of the early venture capital went to Chinese companies in sectors such as telecommunications, e-commerce and online gaming, but experienced investors recently have been diversifying into other areas including consumer business, manufacturing, pharmaceuticals and high-tech. On the surface, China’s institutional private equity and venture capital environment is similar to that of the United States and Europe. But there are important differences that investors interested in China need to understand.
To begin with, the Chinese venture capital and private equity market is young: The earliest China-focused funds were launched in the 1980s, and the concept of private capital in China is less than a generation old. In addition, investment firms based and registered in China face regulatory constraints on the organization of portfolio companies and their listing on foreign equity markets, posing serious challenges to raising capital. Listings on local stock markets require government permissions that are difficult to obtain; investor liquidity can be hampered by stringent lockup requirements. Even companies that manage to get their shares listed locally find that the Chinese stock market is not always... To read the complete article, login or sign-up using the form below.
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