What are the biggest challenges now facing China’s private
equity in-dustry?
Capital investment is a new business sector in China and the
laws and regula-tions covering it are still being devel-oped. For
example, the ground rules for partnerships, taxation, investment
targets, currency policies and exits still need to be
clarified.
Deficiencies in the legislative and regulatory framework prevent
institu-tional investors from fully contributing to the private
equity market. Institu-tional investors still hold a lot of
unex-ploited capital.
Partnership is also a relatively new concept in China, where
both institu-tional and minority private investors can interfere
with a company’s executive management. This erodes the ownership
structure of partnerships and compli-cates fund managers’
decision-making about these companies.
Financial crisis has hit China’s fast-grown
venture capital business.
Despite investors’ caution, economic
prospects continue to be positive.
Urbanisation combined with rising
incomes will boost consumer demand,
believes Yichen Zhang, Chairman of CVCA
(China Venture Capital Association).
China invests in economic growth
»
Text: Matti Remes | Photos: AOP/Alamy and CVCA
Yichen Zhang, Chairman of CVCA
4 Industry Investment 2/2009 5Industry Investment 2/2009
Demand for cutting-edge consumer and brand products is
increasing
“”
How did the Chinese private equity market do last year?
Compared to 2007, the number of funds doubled and fundraising
increased by one-third. According to a Chinese research company,
Zero2Ipo, altogether 116 investment funds were established in
China, and they raised funds totalling USD 7.3 billion.
Zero2Ipo’s information indicates that investments were made in
607 portfolio companies last year in China. Altogether 43 exits
were made through IPOs, mainly in the Shenzhen and Hong Kong Stock
Exchange, compared to 100 exits in 2007.
How has the global economic crisis affected venture capital
investment in China?
Investors have become increasingly cautious, as they have
throughout the world. This will inevitably depress fundraising in
2009. Enact-ing legislation allowing institutions to invest in
venture capital funds would alleviate the situation.
Nevertheless, China’s economic prospects continue to be fairly
prom-ising. Less than 10 per cent of GDP is derived from exports,
and the high savings ratio boosts domestic demand. Company
valuations are approaching a more reasonable level after some
market adjustments.
Market uncertainty and sharp fluctuations have made it difficult
for fund managers to assess companies’ market potential and risks,
compli-cating investment decisions. Chinese investors think twice
before making decisions, and so spend more time assessing potential
targets. We live in a time when experienced investment managers can
prove their competence by making rational decisions.
The slowdown in IPOs will con-siderably limit investor’s exit
oppor-tunities. The economic climate has also highlighted some
unexpected and unwelcome issues that must be addressed – such as
inadequate work-ing capital and unattainable profits.
What sectors most attract Chinese investors?
Urbanisation and the general increase in incomes are expected to
fuel steady growth in consumer demand. This will boost demand for
cutting-edge consumer and brand products. Sec-tors that will profit
from this include the food industry, cosmetics and the healthcare
sector.
Investments in capital assets will also grow, largely through
invest-ments made to develop transport connections and to
reconstruct the infrastructure and the area damaged by last year’s
earthquake.
The CNY 4 trillion (approx. EUR 430 billion) stimulus package
implemented by the Chinese gov-ernment will boost construction and
infrastructure projects, and enable
industries in those sectors to stabilise their business.
Venture capital investment is still young in China. How will you
promote its visibility?
As an active operator in the field, and as the Chairman of CVCA
and a member of the Eleventh National Committee of the Chinese
People’s Political Consultative Conference, I have encouraged the
regulatory authorities to develop legislation and monitoring
systems that would promote the growth of the venture capital
market. It has been thrilling to notice that my proposals have been
addressed. After a thorough investigation and processing by
sev-eral teams, some obstacles slowing down capital investments in
China have now been removed.
However, achieving an effective system requires more work. CVCA
intends to continue highlighting important issues and challenges
that the venture capital market must over-come. One of them is to
improve the skills of venture capital players.
Is China interested in Finland?
So far no investments have been made in Finland. Finland is,
however, famous for its innovative operating environment and
pioneering posi-tion in the IT business. We are also familiar with
your broad expertise in the latest technologies.
Finland has actively promoted and invested in emission-free
energy production in Asia. This sector could offer interesting
opportunities for Chinese investors also.
www.cvca.com n
n Established in 2002.
n Over 150 venture capital companies as members.
n Members manage investments amounting to over USD 500
billion.
n Chairman Yichen Zhang is the CEO of CITIC Capital Holdings
Ltd. Previously he was a Managing Director at Merrill Lynch
responsible for the Asia-Pacific region and he also worked at Bank
of Tokyo Securities in New York. Mr Zhang is a member of the
Eleventh National Committee of the Chinese People’s Political
Consultative Conference, and is a graduate of Massachusetts
Institute of Technology, USA.
China Venture Capital Association CVCA
Industry Investment 2/20096 Industry Investment 2/2009 7
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