Private Equity Attracted By Explosive Growth
By David Cho and Thomas Heath
Washington Post Staff Writers
Tuesday, November 13, 2007
Some of the biggest and most powerful dealmakers in the United States have found a way to keep the buyout boom going: by aggressively pushing into China.
While buyouts were slowing in the United States because of turmoil in the credit markets, deals involving U.S. private-equity firms in China reached $3.1 billion in June, a record month, according to Dealogic, an independent research firm. In three years, U.S. private-equity money in China has grown almost sixfold.
From buying real estate to financing technology firms to partnering with Chinese investors, some private-equity managers say, quite simply, that China is the future. With its economy expanding at four times the rate of that of the United States and with four times as many people, China has enough potential for explosive growth that it could dominate the investment scene for the next century, they say.
Several managers said they were making more money financing start-up firms in China than in any other country in the world. David M. Rubenstein of the Carlyle Group called China the "new Silicon Valley." Michael Pralle, a real estate investment executive, said urban land values could go off the charts as a wave of people -- nearly twice the population of Japan -- are expected to migrate from rural areas to cities, creating massive demand for housing, offices and retail stores.
U.S. private-equity deals, once rare in China, are now being announced regularly.
Blackstone, which opened an office in Hong Kong this year, teamed up with China National Chemical to bid $2.8 billion for an Australian agriculture firm last week. It also acquired a 20 percent stake, worth $600 million, in a subsidiary of China National Chemical in September. The Chinese government invested $3 billion in Black stone when it went public in June.
Carlyle Group, based in the District, has a 25 percent investment in China Pacific Life Insurance and sponsors an essay contest for Chinese business students, bringing the winners to New York and Washington to learn about private equity. TPG, a Texas firm known in China for providing $350 million to Lenovo so it could buy IBM's computer hardware business, has been actively investing in Chinese start-ups.
"China is the most exciting place in the world right now," said Raul Fernandez, a venture capitalist in the District who has stakes in several private-equity firms and spent a 90-hour business trip in Shenzhen this month. "Anyone who wants to do global business has to be in China."
There are some issues that concern these investors -- particularly the fear that Chinese firms are becoming overvalued.
"There are firms that are dot-com bubble-like in terms of valuation," said Colin Blaydon, director of the Center for Private Equity and Entrepreneurship at Dartmouth College's business school. "And while everybody believes the growth is going to be extraordinary, it's going to have to be really, really extraordinary to justify some of the valuations that are beginning to be seen in China."
Others expressed concerns over the government's restrictions on foreign investment and its propensity to crack down on dissidents.
But these reservations aren't keeping them out of China.
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