chinese-shanghai-yuan-505x300What are the hottest sectors in China for attracting private equity investors?

Ravenous energy demands and chronic environmental problems have, not surprisingly,  put alternative energy, energy saving and environmental protection firmly on the radar screen as favorite areas for PE  investment.

In an article published in the Annual Review of China Law & Practice, Hu Jin of Chinese law firm Jun He, looks at the latest developments in the PE industry in China and also some of the challenges it faces.

PE investors are most interested in investing in those areas which have been identified by China’s rulers as  ones that will help propel China’s new economy. Presumbably, that’s because  the risk-reward of investments in these areas will be underpinned by favorable legislation and generous financial support.

Apart from the cleantech sector, other areas identified include new materials, IT , biotech and pharma, and hi-tech services.  Interestingly,  the article also mentions enterprises in consumer product industries, which is not an area usually associated with private equity, at least not early-stage companies.

The rapid development of a greying society in China and the increasing demand for quality medical services, will cause PE investors to increasingly focus on medical and health companies that address  these new demands.

But all is not rosy for China’s young PE industry as investors must be prepared to bide their time when it comes to an exit strategy.

The moratorium on IPOs and the continuously increasing number of enterprises lining up to float points to longer waiting periods for PE divestment and greater uncertainty as to whether divestment can be achieved through an IPO.

The CLP’s Annual Review can be read online here.