China will be the most attractive private equity market globally in the next five to ten years, John Zhao
, chief executive of Beijing-based GP Hony Capital, predicted.
Zhao, a keynote speaker at the PEI/EMPEA Emerging Markets Private Equity Forum in London, said the Chinese government would use fiscal policy to ensure a growth rate of at least 8 percent in 2009 (compared with a 10 percent forecast growth rate this year).
The government has room to manoeuvre thanks to its strong balance sheet. “It’s not a big borrower like other emerging markets,” Zhao said. He pointed out that the country had around $1.2 trillion “and growing” in foreign exchange reserves.
Having initially feared inflation, China’s rulers moved swiftly to free up capital markets when they realised that global recession was becoming the bigger threat. Zhao said Chinese banks were still lending to domestic companies, with lending decisions being made quicker and with more generous terms and conditions attached than in many other markets around the world.
Given that China’s public markets have fallen precipitously and are effectively closed to new issues, Zhao pointed out that this is the first time in China that private equity offers a better prospect of raising capital than the stock market.
He said both domestic and foreign private equity firms would have a role to play in supporting infrastructure projects – which are expected to be approved in ever-greater numbers as a part of a fiscal stimulus – as well as helping Chinese companies to exploit restructuring opportunities in overseas markets.
While acknowledging China’s position of strength, speakers earlier in the day said China's drop in exports and the decline of the property market is evidence that China is not totally insulated from the global downturn.