Despite rising concern about investing and doing business in China, the country’s growth potential makes it a hard-to-miss investment opportunity. Several global investment firms announced new deals in Hong Kong and mainland China earlier this year, consolidating their faith in the region’s long-term development.
The M&A market in China is meeting another challenging year with Covid outbreaks in Hong Kong and mainland China, which prompts several global firms to rethink their operation. Escalated geopolitical and political tensions, e.g. between China and the US amid the Ukraine war also became a great concern for global investors.
Successful international investments
Still, some companies remain confident in the market’s future prosperity. At the end of March 2022, Swedish EQT and its Asian subsidiary announced two major investments in China and Hong Kong within a week’s time.
On March 16, the Swedish private equity group announced its agreement to acquire 100% of Baring Private Equity Asia (BPEA). BPEA is a long-standing Hong Kong-based private markets investment firm with 17.7 billion EUR of assets under management. The strategic move helps to significantly expand EQT’s presence in the booming Asian private markets and put the group in the top 3 active ownership players globally. Mere days later, EQT Private Equity Asia also disclosed its majority investment in Guardian, China’s largest domestic pest control operator, previously owned by Jade Invest. Guardian’s success is fueled by favourable demographic trends, including increasing urbanization, a growing middle class, and a shift towards healthier and environmentally-friendly lifestyles. As there has been growing concerns about investing in China, EQT’s successful investments show a promising outlook for international investors.
China’s tech industry has also continued to receive attention. The Fidelity-backed global venture capital firm Eight Roads announced on March 22 that it has set up a 350 million USD technology fund dedicated to the Chinese market. Eight Roads has invested in China’s technology and healthcare industry for over 25 years, backing over 130 companies, including the tech-giant Alibaba.
China – a promising and unique country to invest in
International investors’ most common concerns for investing in emerging markets include uncertainty over economic development. Nevertheless, the factors that have made China attractive to invest in remain intact. The country continues to stay on its course to becoming the world’s largest economy over the next decade. The Chinese government is also continuously introducing initiatives to strengthen its infrastructure to support foreign investment in multiple industries, ranging from consumer services to hi-tech and green energy. The favourable environment and fast-growing market that makes the country so attractive is not easily replaceable, and businesses that shy away from business activity in the country risk falling behind their competitors.
China’s GDP reached 18 trillion USD in 2021, growing by 8.1 percent YoY and surpassing that of the European Union, which stood at 15.73 trillion USD. As the world’s second-largest economy, the country still has vast growth potential. China’s GDP per capita was 12,551 USD in 2021, six times lower than the world’s top economy the USA, indicating that there is still room for significant growth in their economic activity and household wealth.
China also offers a unique ecosystem for manufacturing expansion. The country boasts high-quality infrastructure and a vast labour pool, among many other advantages. It also claims an extensive capability in technology, reliable logistics, and ease of in-country sourcing. While rising labour costs have been cited as a growing concern among businesses wanting to enter China, its worker productivity and experienced human resources balance it off. The vast experience that China’s labour pool holds results in a highly flexible workforce that can easily adapt to various fields for different business needs.
China’s technology landscape is heading towards data-fueled innovation, leaving behind a past of copycats and counterfeits. The country’s spending on research & development takes up around 2.5% of its GDP, a much higher percentage than corresponding markets at similar or equal development levels. The country’s high investment in technology makes them competitive with advanced economies such as the US. The breadth and depth of China’s tech industry are enhanced by close to one billion internet users, more than the US and EU combined. China’s WeChat and TikTok stood as the world’s fifth and sixth largest social media channels, and the nation is the leading fintech investor in the world since 2018, with investments reaching a value of US$25.5 billion in 2019, a YoY growth of 900%.
China provides an ideal market for businesses and investors who are attempting to gain long-term value. EQT and Eight Roads are successful examples proving the potential that the market has to offer, and investors should not shy away from conducting business activity in China fearing uncertainties in the economy.