Private equity firms revise China strategy as regulatory crackdown widens

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HONG KONG : Private equity firms are rethinking their strategies in China as a widening regulatory crackdown on some of the country's hottest sectors forces investors to scout for bets in other industries that they hope will be less vulnerable to sudden policy changes.Private equity (PE) and venture capit

HONG KONG : Private equity firms are rethinking their strategies in China as a widening regulatory crackdown on some of the country's hottest sectors forces investors to scout for bets in other industries that they hope will be less vulnerable to sudden policy changes.

The move to ban private tutoring firms last month from making a profit from teaching core school subjects and raising capital, for example, is set to trigger a scramble https://www.reuters.com/business/private-equity-firms-scramble-exit-after-chinas-new-tutoring-rules-2021-07-27 among private equity investors to find an exit after pouring in billions.

"With increasing regulation, good companies are becoming fewer and more expensive. Overall, future returns for venture and private equity investors may decrease," said Ji, whose Hong Kong-based fund focuses on leading companies in new economy sectors. According to Chinese data firm Zero2IPO, in 2020, angel, venture and PE-backed investments totalled 887 billion yuan , up 14per cent year-on-year, of which 384.3 billion yuan went to IT, internet and semiconductor and electronics sectors.INVESTMENT POTENTIAL

"China's demand for home-made chips and the trend of electrifying vehicles and autonomous driving will also create many new companies with investment potential," said Henry Zhang, president of Hong Kong-based Hermitage Capital.

 

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