I came across this headline in the China Daily last month – “New Capital Drought Threatens Growth in China!” The related article suggests that China today is experiencing a shortage of new investment capital. The two predominant flows of growth capital to the private sector – initial public offerings proceeds and investments by 1000+ private equity firms active in the market – have pretty much dried up. This could hinder overall economic reform and obviously limits significantly the financing options of private companies.
As recently as 2011, IPO’s and private equity pumped in between US$20-30 Billion per year into private companies but in the past nine months the figure is almost close to zero. This is primarily due to the lack of investor confidence in the true financial position of private sector companies and the government’s decision to shut down IPO’s from the Summer of 2012. When the IPO’s stopped so did investing by PE’s.
China is full of talented entrepreneurs building companies that will endure and create long-term value. (Private equity players have already invested US$200 Billion into over 10,000 private companies.) This is true in the restaurant/hospitality sector as well. It seems to me a good time for overseas chains to get in the game and look at M&A opportunities in this sector.
There are many great international chains who may not have the appropriate concept for the China market but have excellent management practices that can be rapidly applied to any acquisition. They should consider this market entry avenue now!