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China PE deals, fundraising, hit records in 2011

China’s record $31.2bn in private equity deals last year was driven by constraints on alternative financing and low stock market valuations, according to advisory firm PriceWaterhouseCoopers.

Private equity deal value in China exceeding $10 million hit a record $31.2 billion, representing a 33 percent increase from the previous year, according to PWC in Hong Kong.

The number of deals in this category increased by 18 percent to 437 transactions – the highest number ever. 

“There are now many domestic players who can compare favourably to their more established global peers,” David Brown, a partner in PwC's Hong Kong office, said in a statement. “Nevertheless, over half of the 10 biggest China PE deals in 2011 were carried out by overseas PEs which continue to play an active role in the market.” 

On the fundraising side a record was also set. Private equity firms raised $44.1 billion for investment in China. RMB funds accounted for 60 percent of the total, continuing the growth trend of the past two years, the firm said. 

Private equity’s performance was driven by China’s small and medium size company demand for growth capital, which is not readily available from banks and local capital markets. 

“Private equity is emerging as a key provider of growth capital for China's small and medium-sized enterprises, as they aim to expand but face challenges in raising funds amid fiscal tightening and uncertainty in the equity markets,” according to the statement.

Also driving China deal growth was low stock market valuations leading to opportunities for private investment in publicly listed equity (PIPE) deals and activity around Chinese companies with troubled overseas listings, especially the US, the firm said.

In 2012, PWC expects to see consolidation, “with some weaker or less sophisticated domestic PEs withdrawing from the market, and fundraising will be more challenging both locally and globally,” Brown said.