China PE industry seen surging on SMEs, Taiwan targets

* China's domestic PE industry seen at 10X its current size

* China's PE firms to fund China's small to mid-sized firms

* Taiwan services sector also seen as target for China PE

* China's SME seen in favour of local PE funds

By Faith Hung

TAIPEI, Nov 4 (Reuters) - China's homegrown private equity industry could grow to 10 times its current size in the next few years as domestic firms fund SMEs, allowing China's PE firms to better compete in a market long-dominated by global giants, industry executives said on Wednesday.

The mainland's private equity industry -- still in its infancy only three years ago -- could grow to $1 trillion Chinese yuan ($147 billion) over the next five years from less than $100 billion yuan now, Katherine Wang, chairwoman of Power Capital Corp, said at a conference in Taipei.

"One major policy the government has taken is to encourage PE funds by giving them tax incentives from their investments," said Wang, who runs a Beijing-based $2 billion yuan fund.

"Chinese PEs would be able to compete head to head with foreign firms like Carlyle [CYL.UL], TPG Capital [TPG.UL] and Softbank (9984.T) over the next five years," she told reporters.

China's PE market, which so far has been dominated by foreign firms, will be increasingly favourable to domestic players who are better positioned to fund small- and medium-sized firms in the mainland, some executives said.

"These firms do not have sufficient capital to grow, giving a very good chance to China's local PEs," said Han Zhisen, vice secretary general of the Beijing Private Equity Association."

"They would prefer local firms like us to foreign PEs, which always demand controlling stakes," said Han.

EASING TIES

As Chinese private equity firms expand, they will also target Taiwanese companies as part of a broader sign of easing trade ties between the two former political rivals, executives said.

"Good investment opportunities for them will be in Taiwan's services sector, whose risk is lower than technology firms," said Howard Lin, chief investment officer of Fubon Financial Holding (2881.TW).

Providers of financial services, media, distribution and hotels would be potential targets for Chinese PE funds, Lin added.