PE China

Private equity welcomes China reform plan

Promises of less bureaucracy, land reform and free trade zones in China got a thumbs up from private equity professionals at a conference in Hong Kong.

Private equity professionals said on Wednesday that the Chinese government's plans for reforms will help smooth the way for more deal-making in China.

Fred Hu, chairman and founder of Primavera Capital Group, said he had grown worried over the past few years about China’s state-capitalist economic model, where the government remained the main driving force, dictating how and where resources were allocated.

“If that model had continued then I think it would be very hard for any private investor, be it private equity or multinational or private entrepreneur, to thrive in China in the long term,” said Hu, speaking at the AVCJ Asian Private Equity & Venture Forum.

The Third Plenary session of the Chinese Communist Party ended on Tuesday with a roadmap forged by the new leadership, setting out China’s economic reforms for the next 5-10 years.

The wide-ranging plan covered the relationship between the government and markets, the gap between rural and urban areas, the relationship between state-owned and private sectors, rule of law, and the fiscal and taxation system.

“Now the direction is very clear and China will strive to build a free market economy … This vision should be quite favourable for financial markets, the private sector and, specifically, for private equity,” which he joked was the most capitalistic type of investor since it was heavily focused on generating big returns.

He noted that the political commitment to a free market economy has yet to be translated into concrete measures, whether it be laws, regulations or policies. But he thought change was gathering momentum in recent months.

Hu was particularly pleased with China’s goal to cut red tape at all levels, which he called “one big headache”.

He said that in China -- even after identifying a potential deal, studying a company’s accounts and negotiating terms -- there was always a lot of uncertainty as dollar-denominated private equity funds would still have to seek approval from various ministries and regulatory agencies.

Yap Kian Woon, a partner at CMIA Capital Partners, agreed that the results of China’s third plenum were positive, especially the promise of land reform.   

“The message was very clear, we’re going to help farmers increase their income and speed up land reform,” Yap said. This will boost consumer demand in China, he noted, because 40% of the country's population is still employed in agriculture. CMIA Capital Partners focuses on making investments in agricultural and food sectors in China and across Southeast Asia.

Zhen Gao, a managing partner at Mandarin Capital Partners, said she was particularly pleased with the promise of fewer rules on private capital investment in some specific sectors, such as healthcare in Shanghai’s free trade zone. She said she felt sure that in a few years time this liberalisation would be copied across the rest of China.

“Some real barriers for entry into China are gradually being removed,” she said. 

¬ Haymarket Media Limited. All rights reserved.
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