China private equity at crossroads

China’s private equity industry in at a peculiar crossroads. The mainland PE market has been flourishing in recent years due to steady industrial growth, but for the firms themselves, the exit route appears to be choked as of now.

From a near-zero base in 2000, global private equity funds and their start-up local counterparts rushed into the Chinese market — clocking nearly 10,000 deals worth $230 billion (Dh844 billion) between 2001 to 2012. But according to a report released recently, of those deals, some 7,500 remain “unexited”, meaning that private equity investors are yet to find a way to cash out of their investments and pocket profits.

In mature markets, private equity firms usually sell to peers in a given industry or to other PE funds. But the Chinese private equity market has been mostly reliant on one exit route: the initial public offering (IPO). Historically the exit route for PE companies has been an IPO either on the Mainland China markets, or the US markets, but at the moment the two routes don’t look very encouraging.