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Capital Markets

China: Private equity market deepens

But there are signs that the supply of suitable targets is contracting.

Capital being raised by China private equity funds is showing signs of long-term increases. Greater China research firm Zero2IPO has released data showing that the amount raised by Asia funds had increased 102.2% year on year at the end of the Q2 2007. Some $5.79 billion of capital was raised into 15 new Asia-focused private equity funds in the second quarter, and 45 Chinese enterprises garnered $2.41 billion of private equity investment, says the firm.

"Compared with the same period of 2006 when 17 deals were closed with disclosed amount of $1.93 billion, deal number increased by 164.7% and investment amount rose by 24.9%," the report says. "The analysis reflects that the private equity managers have revised their strategy to diversify investment risks through the inclusion of more portfolio companies and hence lowered the average deal size."

Traditional industry remains the most important area of investment, accounting for almost 56% of the total amount raised in the second quarter. The IT sector is also seeing a lift. Ten IT-related enterprises secured $1.35 billion.

Not everyone is convinced, however, that the private equity market in China will continue to grow at its present pace. Although year-on-year growth was positive, the number of funds launched fell from 17 in the first quarter, raising more than $7.5

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