2014 has been a year for the record books concerning private equity. Global investment exits through initial public offerings accumulated two trillion US dollar and about 500 billion US dollar have been collected in private equity funds for future investments.
These impressive numbers show how important private equity has become in the international financial sector and China has evolved to one of the biggest private equity markets in the world. This raises the question of who is in power in the Chinese market? Giants like Goldman Sachs, Blackstone or Carlyle dominate the international market. So how are the domestic Chinese private equity firms doing? When China first heard of private equity in the early-1990s, it was already one of the biggest investment markets in the West, mainly in America. Hence, American companies had nearly no competitors in China and made fortunes in this recently opened market. Nevertheless, domestic firms developed quickly and challenged foreign companies to a duel.
This paper will be divided into two parts, firstly it will show the development of Chinese and foreign private equity companies and their shares on the Chinese market. The second part then will try to give an impression on possible reasons for the mentioned development. There won’t be any further explanations about private equity given in this paper, only if they are needed for deeper understanding of the context. However specific knowledge about private equity will not be needed since it won’t discuss specific features of it in detail. The aim of this paper is to answer the questions about how the market developed and the possible reasons for this.
Table of Contents
- Introduction
- Initiation of China's private equity market and development until 2005
- Development between 2004 and 2014
- Fundraising by FOPE and COPE
- Completed investments by COPE and FOPE
- Short summary of private equity market development
- Possible reasons for the declining market share of FOPE
- Legal framework and regulations
- Government agencies relevant for private equity
- Red Chip structure or Round Trip investment
- Other important regulations concerning FOPE and COPE
- China's stock market and IPO
- Princeling-returnee constellation
- Other influences
- Legal framework and regulations
- Conclusion
Objectives and Key Themes
This paper aims to analyze the development of the Chinese private equity market, focusing on the competition between foreign-owned private equity firms (FOPE) and Chinese-owned private equity firms (COPE). It seeks to understand the factors contributing to the changing market share dynamics between these two groups.
- Development of the Chinese private equity market from its inception to 2005.
- The rise of Chinese private equity firms (COPE) and their increasing market share.
- The role of government regulations and policies in shaping the market.
- The impact of the global financial environment on the Chinese private equity market.
- The competitive landscape and strategies employed by FOPE and COPE.
Chapter Summaries
Introduction: This introductory chapter sets the stage by highlighting the remarkable growth of the global private equity market in 2014, emphasizing the significant role of China. It introduces the central question of the paper: the power dynamics within the Chinese private equity market between international giants and domestic firms. The chapter outlines the paper's structure, which will focus on the historical development of the market and potential reasons for the observed trends, while acknowledging that in-depth explanations of private equity itself are beyond the scope of this work.
Initiation of China's private equity market and development until 2005: This chapter traces the evolution of private equity in China, beginning with its roots in the venture capital (VC) industry spurred by Deng Xiaoping's economic reforms. It details the slow initial growth due to inexperience and inconsistent governmental policies. The chapter highlights the pivotal role of Goldman Sachs' early entry and subsequent dominance, followed by the arrival of other international players in the mid-1990s. The impact of the Asian financial crisis and subsequent governmental initiatives to revitalize the VC industry are discussed, leading to the emergence of key domestic players like CDH Investments and Hony Capital. The chapter concludes by illustrating the significant market share disparity between FOPE and COPE by 2005, with FOPE holding the vast majority.
Keywords
Private equity, China, FOPE (Foreign-Owned Private Equity), COPE (Chinese-Owned Private Equity), market share, government regulation, venture capital, economic development, competition, investment.
Frequently Asked Questions: Analysis of the Chinese Private Equity Market
What is the main topic of this paper?
This paper analyzes the development of the Chinese private equity market, focusing on the competition between foreign-owned private equity firms (FOPE) and Chinese-owned private equity firms (COPE). It investigates the factors contributing to the changing market share dynamics between these two groups.
What time period does the analysis cover?
The analysis primarily covers the development of the Chinese private equity market from its inception up to 2005, with some discussion extending to 2014 to provide context for the trends observed.
What are the key themes explored in the paper?
Key themes include the historical development of the Chinese private equity market, the rise of COPE and their increasing market share, the role of government regulations and policies, the impact of the global financial environment, and the competitive strategies employed by FOPE and COPE.
What is the difference between FOPE and COPE?
FOPE refers to Foreign-Owned Private Equity firms, while COPE refers to Chinese-Owned Private Equity firms. The paper contrasts their market performance and explores the reasons behind the shifting market share between them.
What factors contributed to the changing market share between FOPE and COPE?
The paper explores several factors, including the legal framework and regulations in China, the role of "princeling-returnee" constellations (influential individuals with connections to the government), and other unspecified influences that impacted the competitiveness of FOPE and COPE.
What is the role of government regulation in the Chinese private equity market?
The paper examines how government agencies and policies, including regulations related to the Red Chip structure and Round Trip investments, have shaped the development and competition within the market.
What is the significance of the Asian Financial Crisis in the context of this analysis?
The Asian Financial Crisis is discussed as a significant event that impacted the early development of the Chinese private equity market and influenced subsequent governmental initiatives.
What are some examples of key players in the Chinese private equity market?
The paper mentions Goldman Sachs as an early and dominant international player, as well as the emergence of key domestic players like CDH Investments and Hony Capital.
What is the scope of the analysis regarding the broader concept of private equity?
The paper focuses specifically on the Chinese context and the competition between FOPE and COPE. In-depth explanations of the broader concept of private equity are acknowledged to be outside the scope of this work.
What are the key findings or conclusions of the paper (in brief)?
While the detailed conclusions are not explicitly stated in the provided overview, the paper aims to identify and explain the reasons behind the observed shift in market share from FOPE to COPE in the Chinese private equity market.
- Quote paper
- Johannes Gmeiner (Author), 2016, Private Equity in China. The struggle for China's private equity market supremacy between foreign and domestic market participants, Munich, GRIN Verlag, https://www.grin.com/document/438753
