Global Private Equity Stops Writing New Equity Cheques in China

The Financial Times reported that large global private equity firms have made no new equity investments in China, with managers avoiding fresh commitments as Beijing tightens scrutiny of foreign capital in sectors it treats as sensitive. One executive quoted by the newspaper described the market as not worth the effort required.

The retreat has been building. Data compiled by S&P Global Market Intelligence showed that 1,664 of 1,686 private equity transactions involving mainland China through July of last year were domestic, and that fundraising by China-focused funds was heading for a fourth consecutive annual decline. Lawyers advising on deals report that national security review has become routine in transactions touching data, critical technologies, infrastructure or supply chains, which lengthens timelines and makes exits harder to underwrite.

A parallel process is under way in Russia. The state news agency TASS reported that members of the Federation Council, the upper house of parliament, have proposed granting benefits to foreign-owned companies placed under the management of Rosimushchestvo, the federal property agency, by entering those enterprises in the register of small and medium-sized businesses. The proposal would normalise the status of assets taken out of foreign control by giving them the same support that domestic firms receive.

The two developments run in the same direction. In one case foreign investors decline to enter, in the other the host state formalises what it already holds. Both reduce the pool of cross-border equity that once moved freely between blocs.