April 7, 2009 ¨C Beijing, China. China Venture Capital Association (CVCA) released the latest survey report on the China VC/PE industry. According to the report, in the context of the deepening global financial crisis and China's current economic difficulties, foreign VC/PE firms have generally slowed down their pace of investment in China, yet they still remain confident in the long-term development of China market.
In the first quarter of 2009, CVCA conducted a survey with the aim of revealing the impact of the ongoing global financial crisis and China's current economic difficulties on foreign VC/PE firms doing business in China, and reflecting the viewpoints and suggestions of foreign VC/PE firms on the industry regulatory environment. The survey received feedback from 39 leading representative foreign VC/PE firms in China.
Foreign VC/PE firms remain confident in the long-term development of China Market
The survey indicates that the short-term investment confidence of foreign VC/PE firms was, to some extent, hit by the global financial crisis and China's current economic difficulties. Meanwhile, foreign VC/PE firms continue to hold confidence in the long-term development of China's VC/PE market. 43.6% of respondents said that their short-term investment confidence in China has been weakened. 84.6% of respondents said their long-term investment confidence remains unchanged while 15.4% expressed increasing long-term confidence.
Foreign VC/PE firms remain confident in the long-term development of China's VC/PE market, mainly because they believe in the long term prospects of the Chinese economy and small and medium-sized enterprises (SMEs). In addition, they maintain that the global financial crisis and China's current economic situation offer the VC/PE industry opportunities for-growth, for example - lower investment costs (97.4%); more rational investment mentality (69.2%); an increasing emphasis on the value-added service for portfolio companies (43.6%); and the surface of high-quality deals (41.0%) - all of which will have positive impact on the long term development of the industry.
Foreign VC/PE firms believe that China's VC/PE market will complete the current round of adjustments within 1-3 years
The surveyed foreign VC/PE firms widely hold the belief that China's VC/PE market will complete this round of adjustments within 1-3 years. Specifically, 48.7% of respondents believed that the Chinese VC/PE market will complete this round of adjustments within 1-2 years; 38.5% believe within 2-3 years; 7.7% believe within 1 year. Only 5.1% believe it will take over 3 years.
97.4% of foreign VC/PE firms interested in setting up RMB funds
The survey reveals that foreign VC/PE firms are very keen on setting up RMB funds. A vast majority (97.4%) of respondents said that they are interested in establishing or planning to set up RMB funds, whereas only 2.6% expressed no interest.
The main reasons for such high interest lie within certain factors: the overseas exit channels for foreign VC/PE have narrowed, while China has witnessed substantial improvements in the exit environment and has established a regulatory environment for foreign investors to set up RMB funds; the global financial crisis has caused asset shrinkage of overseas institutional investors and resulted in a more cautious investment mentality of foreign LPs, which has made VC/PE overseas financing more difficult. 10.3% of respondents held the view that the target of their new round of financing has changed from overseas LPs to domestic Chinese LPs as a result of the global financial crisis.
Environmental protection and new energy, consumer products and services, and healthcare sectors will be the key areas for foreign VC/PE investment in the next 1-2 years
The survey shows that in the next 1-2 years, the top three sectors for foreign VC/PE investment will be environmental protection and new energy (79.5%), consumer products and services (74.4%) and healthcare (69.2%). Environmental protection and the new energy industry will be the most attractive sectors for foreign VC/PE firms, followed by consumer products and services, and healthcare. Additionally, education/training, traditional manufacturing and the Internet will also be attractive to foreign VC/PEs.
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About China Venture Capital Association(CVCA)
The China Venture Capital Association ("CVCA"), incorporated in 2002, is a member-based trade organization established to promote the interest and the development of the venture capital ("VC") and private equity ("PE") industry in the Greater China Region. Currently CVCA has more than 150 member firms, which collectively manage over US$500 billion in venture capital and private equity funds.
For more information about CVCA, please visit www.cvca.org.cn.