Permira, the European private equity firm, is planning to set up an office in Shanghai or Hong Kong in the latest sign of the west's growing interest in China's fledgling private equity market.
US venture capital firms have had China on their radar for some time, but investing in China's well-established businesses is relatively new idea. Indeed, Permira has apparently just woken up to the opportunities out east — its only Asian office to date is in Tokyo.
Paolo Colonna, chairman of Permira, told Shanghai Securities News that Permira was targeting investment at large and medium-sized enterprises in China that need to bolster distribution and so reach a bigger market.
The firm is seeking to become majority investors in Chinese companies, but emphasised it would not meddle in the operation of companies.
Permira already has a foot in the China market through some of its portfolio companies such as Italy's Marazzi, which makes ceramic tiles. But Colonna said Permira was no longer satisfied with indirect investment in China and wanted a direct stake in the China growth story.
According to US investment group Warburg Pincus, private equity investors pumped over $1bn into China in 2005, more than double the investment in 2001.
Many sectors make up the China growth story, but Warburg Pincus is particularly keen on Chinese property and plans to pour $400m into local property firms to tap into the predicted strong demand for medium-sized flats from increasingly affluent Chinese consumers.
It already holds stakes in a clutch of Chinese property companies and Shenzhen-based budget hotel chain 7 Days Inn, which has 10 hotels in Beijing, Shenzhen and Wuhan.
Western private equity firms are also eyeing China's technology sector. Most of the focus, inevitably, is on little-known internet start-ups in the belief that it will be China and not the US that produces the next Google. But there is also foreign PE interest in late-stage deals.
For example, SMIC, China's largest contract chipmaker, was recently the subject of speculation that it had been approached by PE buyers, according to the Financial Times ($).
Finally, another private investor making big bets on China is Maurice Greenberg, the former boss of American International Group, the world's largest insurer. Through his Starr International, Greenberg has taken a 50% stake in a 1bn yuan private equity fund with Citic Securities, China's state-controlled brokerage.
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