China PE industry seen surging on SMEs

TAIPEI (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 favorable 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.


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.

Taiwan currently does not allow Chinese PE firms to invest in the island’s companies.

But following a decades-long freeze, trade relations across the Taiwan strait have thawed markedly since China-friendly President Ma Ying-jeou took office last year.

Taiwan expects to sign a much-anticipated financial services pact with China within the month, a Taiwan government official said on Tuesday. [ID:nTP166124]

The pact is expected to create ties between China’s and Taiwan’s financial markets. Bilateral deals promoting tourism and shipping links have already been concluded.

Editing by Joseph Chaney and Jacqueline Wong