Capital gains

Some have expressed concern about the speed of growth of the China venture and private equity market. Blackstone, the major US private equity company, is one that has been relatively cautious.

Antony Leung, senior managing director and chairman for the group in Greater China, has said he is prepared to be patient.

"China's economy is not short of money and many deals' valuation are high. Some of the pre-IPO deals were valued higher than public companies. Blackstone is a conservative company to some extent, so if we think a deal's valuation is too high, we will not invest."

One of the major concerns about the Chinese economy is that many SMEs (small- and medium-sized enterprises) are suffering from a funding shortage, exacerbated by the government's credit-tightening policies designed to bring down rising inflation.

Edwards Tse, chairman of management consultants Booz & Co in Greater China. [Nick J B Moore / for China Daily]

Edwards Tse, chairman of management consultants Booz & Co in Greater China, based in Beijing, sees a role for venture capital and private equity as vital for plugging that gap.

"SMEs are suffering somewhat because the banks are geared toward lending to larger enterprises and are not paying much attention toward smaller companies. There is a funding gap," he says.

"But to be attractive to the venture capital and private equity companies, they need to have a good story to tell. This type of finance is not for the mom and pop shop round the corner."

Wang at Liuhe Private Equity wonders whether there is a role to play for venture capital or private equity to make up or the shortage of bank lending.

"We are not looking for companies who have difficulty getting loans. Our advice to companies is not to over extend themselves and the ones we have invested in tend to have good reserves of cash."

The major risk takers remain the venture capital companies. Many of the businesses they invest in fail but the funds make a return on their investment by the exponential returns of the winners they pick.

Because it is an undeveloped market, it is often even more difficult in China to predict which businesses will succeed.

Zhang at ACE has adopted a novel approach to this by setting up its own academy that mentors entrepreneurs before the company makes any investment.

"A lot of young entrepreneurs have no corporate experience and the failure rate can be as high as 99 percent. Many people have good ideas but they just don't know how an enterprise works and we aim to give them that experience," he says.

From his offices over-looking London's Tower Bridge, Nick Luckock is looking for opportunities in the financial services sector in China.

Above: Nick Luckock, director of financial services at Actis; Geng Feifei / China Daily Below: Edwards Tse, chairman of management consultants Booz & Co in Greater China. [Nick J B Moore / for China Daily]

He is director in financial services at Actis, a private equity company which specializes in emerging market economies and also has major operations in Africa and Latin America.

"The market in China is very competitive. There are at least 20 other private equity firms looking to invest in the financial services sector as well so we have to differentiate ourselves and be able to add something beyond the capital," he says.

The financial services sector is restricted to foreign companies with the major international banks being unable to set up retail branches in China.