China’s private equity and venture capital (China PE/VC) market is large and growing, and currently represents the second largest PE/VC market in the world. We believe an allocation to China PE/VC can add value within a broader global PE/VC portfolio by enhancing returns and diversification. In addition, it provides exposures in high-growth companies that are not fully accessible via Chinese public equity or other asset classes.1
 

The fundamental drivers behind the growth in the China PE/VC market lie in the country’s rising consumption power and its focus on innovation. China’s private consumption is forecast to more than double to about $14 trillion by 2030, matching the current size of US private consumption.2 Furthermore, China has a developed ecosystem of talent and capital resources that supports research and innovation as the country transitions from ‘the world’s factory’ to a ‘high-tech innovator.’ This represents a favorable backdrop for PE/VC managers to fund companies that capitalize on China’s evolving consumption trends and opportunities across industries to enhance productivity and innovation.
 

Investing in China PE/VC is more complicated than investing in developed markets PE/VC. On top of being a dynamic market with frequent new manager spin-outs, investors also need to consider geopolitical, regulatory and other risks, which present both opportunities and threats. Building a successful China PE/VC program requires deep local market expertise and access to quality managers.

Mei Ni Yang, CFA
by Mei Ni Yang, CFA

Head of Asia/Pacific Private Equity, Mercer Alternatives

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1 For more details on opportunities in Chinese onshore and offshore public equities and the current view on Chinese onshore bonds, visit Mercer’s China hub: www.mercer.com/our-thinking/wealth/investing-in-china.html

2 IMT, World Bank, National Statistical Agencies, Haver, February 28, 2020.

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    July 2021