Private equity (PE) backed companies were more profitable and successful in creating jobs than their publicly listed peers in China over the past seven years, according to a survey conducted by Bain & Company and the European Union Chamber of Commerce.
The survey compared the performance of 100 companies that received at least $20 million PE funding, excluding real estate and bank investments, with 2,424 publicly listed Chinese companies between 2002 and 2008.
PE firms recorded nearly 100 percent growth in jobs and 56 percent in profits over their bigger peers during the period.
More importantly PE firms have fostered inland province development, boosted domestic consumption, transferred management know-how to businesses under their portfolios and greatly improved corporate governance, the survey said.
"Although private equity is a relatively new phenomenon in China, it is fast gaining ground and scoring over others," said Michael Thorneman, managing partner, Bain & Company Greater China.
The biggest contribution of private equity has been the creation of better-run companies. Companies with PE shareholders posted annual revenue growth of 25 percent and an average earnings growth of 39 percent, up 3 percentage points and 12 percentage points over the benchmark companies.
The survey also shows that PE investors are showing keen interest in China's consumer goods and retail industry. While PE investment in China as a whole increased by 58 percent since 2002, investment in the consumer goods and retail industries grew by 77 percent.
PE investments in consumer and retail businesses now rival those in traditionally strong sectors like IT and media.
Retailers backed by PE investors reported sales growth of 47 percent compared with 16 percent for publicly listed retail companies. Consumer goods companies backed by PE investors showed sales growth of 30 percent against 18 percent for listed peers.
"Over 50 percent of the PE firms that participated in the survey felt that consumer products and retail sectors are the most promising sectors, but also felt that the sector would become more competitive in the future," said Thorneman.
Total employment at private equity-financed firms increased by 16 percent over the survey period compared with 8 percent at publicly listed companies. PE-backed firms also pay significantly higher wages. The gross salary growth rates at PE-backed companies outperformed those of the listed companies by 7 percentage points.
Private equity has also been a strong contributor to the government's "Go West" policies. The survey found that 42 percent of the investment was directed to companies headquartered in inland provinces.
"China has emerged as one of the leading destinations for PE capital, and PE capital has a more positive image in China than in other western countries," said Andre Loesekrug-Pietri, chairman of the European Chamber's PE working group.
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