A survey of 20 private equity and venture capital firms investing in China found that a majority feel the Chinese economy will recover from the current recession by the second quarter of 2010 or sooner, with 19 of the firms saying they plan to invest in China in the coming months.
That’s “very positive,” said survey conductor Paul Wang, LLM ’94, JD ’99, a partner in DeHeng Law Office in Beijing, one of the biggest law firms in China. Wang discussed his survey results and other investment statistics at an event hosted by the student-led Chicago Asia-Pacific Group. February 21 at Harper Center.
His survey showed 35 percent of the firms believe China’s economic recovery will come in the first quarter of 2010, and another 25 percent think it will happen in the second quarter of that year.
Wang said many people think the Chinese economy will improve before the United States economy will. It would be desirable for firms to prepare to list on the Chinese stock exchange. Venture capital and private equity firms are “very flexible” about listing on the Chinese stock exchange now, whereas before they wouldn’t allow it, Wang said.
Investments in China made by private equity and venture capital funds have steadily climbed from $518 million in 2001 to $4.2 billion in 2008, Wang said. Such firms have raised about $28 billion in capital in China in 2008.
In 1995, only 27 private equity and venture capital firms existed in China with $640 million under management, according to Wang. In 2007, the number of such firms had grown to 383, with $15 billion under management.
“In China, we are at the stage where the United States was in the 1990s,” Wang said.
Financial services received the lion’s share of investment in 2007, followed by software, and then traditional manufacturing, he said.
When asked why they invest in China, 19 of the 20 firms surveyed chose “sustained growth of the Chinese economy.”
Wang said China continues to be a great place to invest for those who perform due diligence and familiarize themselves with Chinese culture and local customs first.
“Often (foreign investors) will make bad judgments,” Wang said. “It’s not because they’re not smart; it’s because they don’t know the local market very well.”
Many Chinese firms may not pay for social benefits for their employees or pay taxes as a matter of custom, he said. Foreign investors should shield themselves from liability before making a deal, he said, but the entrepreneur may still be a worthwhile investment.
Zhiyong Yang, a first-year student in the full-time program, worked as a legal consultant in China. “I think the legal system will improve very quickly in the near future with the improvement of the whole economy, and there will be more and more entrepreneurs,” he said. —Mary Sue Penn