Private equity firms are rethinking their strategies in China as a widening regulatory crackdown on some of the country's hottest sectors forces investors to scout for bets in other industries that they hope will be less vulnerable to sudden policy changes.
Private equity and venture capital funds are pivoting away from data-heavy, consumer-facing internet companies to sectors including semiconductors and renewable energy, industry executives said.
"We are faced with the most stern regulatory environment in over a decade, when market competition is the fiercest and capital the most abundant," said Richard Ji, chief investment officer and managing partner of All-Stars Investment. The number of funds raised this year, however, is less than a third of last year and a steep drop from the fundraising peak in 2016 and 2017 when over 1,100 funds were raised each year, the data showed.
Those sectors are also seen by some executives to be in line with China's strategic goals, as, investors say, Communist Party rulers putsand remake certain sectors to curb cost pressures and better serve ordinary people. Investors are also chasing tech firms that only concentrate on the Chinese market to avoid potential regulatory risks with their overseas operations, said a Beijing-based senior investor with a PE fund.
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