PE firms have plenty of opportunities in China in 2015

Private equity firms will have an active and profitable 2015, based on the rapid development of the Internet, the blossoming of startup companies and the benefits of China's financial reforms, the chairman of the Beijing Private Equity Association said.

"The Chinese PE market will be presented with three huge opportunities. I believe that 2015 will be a bull year for the market, and that situation will persist for a decade," said Shan Xiangshuang.

Shan said the rapid development of the Internet, the mobile Internet and big data will have a significant effect on the strategies and investments of the Chinese PE sector.

"The traditional profit pattern in the sector is based on information and resource asymmetry, but the Internet is decreasing asymmetry and creating an open and shared environment," said Shan.

"However, private equity firms can take advantage of the strong intermediary, the Internet, to develop businesses with a new structure."

The nation's mobile Internet sector was worth about $51.6 billion in the third quarter of 2014, up 93.4 percent year-on-year, according to consultancy iResearch Group.

Shan said that reforms in the capital markets last year were deep. He cited developments such as the establishment of the National Equities Exchange and Quotations, an over-the-counter market that is China's third national equity exchange, as well as plans for a registration-only system for initial public offerings.

These moves "can do much to improve the liquidity and profitability of PE investment," he said.

"The third driver is the growing wave of innovation and startups," he said.

Since the 18th CPC National Congress in 2012 confirmed that China would pursue an innovation-driven strategy, a series of measures have been taken to support innovation.

A State Council (cabinet) executive meeting held on Dec 3, which was presided over by Premier Li Keqiang, said that the pilot support policies being offered in the Zhongguancun Science Park in Beijing will be expanded to other regions of China.

China is also upgrading its traditional sectors and adjusting its economic structure. Those moves are prompting corporate innovation.

As for the Chinese PE sector in 2014, the challenges included financing pressure on investment funds and difficulties operating companies in which PE firms had investments, said Shan.

According to Zero2IPO Group, 2,765 private equity (including venture capital) deals were made in the first 11 months of 2014. The total value was $66 billion, up 112 percent on the full year of 2013.

Highlights in 2014 included the resumption of A-share IPOs and the emergence of new PE firms, Zero2IPO said.

Internet giants, listed companies, financial institutions and central and local governments have been taking part in PE investment.

Li Weiqun, secretary-general of China Association of Private Equity, said that starting 1967, the year in which the global PE sector was born, the industry experienced three cycles.

The sector entered a fourth cycle in 2014 that will provide profits over the next five to 10 years. The internationalization of the yuan will help Chinese PE and VC investors pursue deals and technology abroad, said Li.