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New regulations breed cautious optimism for China's private equity market

The majority of private equity and venture capital investors in Asia Pacific believe China offers the best investment opportunities in the region, according to PricewaterhouseCoopers' ‘Show us the Money' survey. But most will wait to see what impact China's recent regulatory overhaul has before setting up funds in the market.

‘It is perhaps a little surprising, but at the same time very encouraging, that China has overtaken South Korea as the most popular destination in Asia,' said Jim Woods, PricewaterhouseCoopers Transaction Services partner.

‘Many potential investors have expressed concerns about perceived difficulties in executing transactions in China, and then being able to successfully realise those investments via a trade sale or IPO at an acceptable rate of return,' Woods said.

‘It would appear, however, that the process of reforms currently underway in China both in terms of admission to the WTO and more specifically, the recent introduction of certain M&A and venture capital rules to encourage foreign investment, are being seen in a positive light in the market,' he continued.

Regulations covering foreign participation in private equity funds were initially enacted in August 2001, but were revised in March this year. Private equity firms have welcomed the changes but do not expect their impact to be immediate.

Of the surveyed respondents 60 per cent of private equity and venture capital investors considered China to be the most attractive market in Asia-Pacific. But 77 per cent indicated that they did not intend to start a fund in china in the near future.

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