Strengthening the 'Anti-China Encirclement'... US Private Equity Funds Reduce Investments in China

Proportion of Chinese Company Acquisitions Drops from 3.5% in 2015 to 0.3% in 2022
US 'Restrictions on Private Investment in China' Executive Order Announcement Imminent
Some Private Equity Funds Preemptively Sell Stakes in Chinese Companies

As the Joe Biden administration in the United States strengthens its containment strategy against China centered on advanced technology, it has been revealed that investments by U.S. private equity funds in China have significantly slowed down in recent years. Some private equity funds are proactively making 'exits' (investment withdrawals) ahead of the announcement of an executive order that sanctions private investments in China's advanced technology industry, suggesting that future investments in China are expected to contract further.

[Image source=Yonhap News]

Bloomberg News reported on the 7th (local time), citing data from market research firm PitchBook, that the proportion of Chinese company acquisitions among global investment deals involving U.S. private equity funds in 2022 was 0.3%. Although this is the same level as the previous year (0.3%), it continues a downward trend from 3.5% in 2015 and 1.3% in 2018.

The value of deals involving Chinese companies in which U.S. private equity funds participated also sharply declined from $24.5 billion in 2015 to $12.1 billion in 2018, and further down to $3.5 billion in 2022.

Following the anti-China stance revealed during the trade war under the Donald Trump administration starting in 2018, the Biden administration has openly sought to curb China by rallying allies, significantly dampening investment sentiment toward China. The Biden administration has worked on controlling semiconductor exports to China while building the Indo-Pacific Economic Framework (IPEF) to counter China. In recent years, amid U.S.-China tensions, investment enthusiasm in Chinese companies has cooled due to investment losses from Chinese company acquisitions and excessive intervention by the Chinese government symbolized by the crackdown on Alibaba.

Proactive investors are further reducing their investment proportions in China in preparation for the soon-to-be-announced U.S. executive order. The Biden administration has nearly completed preparations for an executive order restricting investments by U.S. companies in advanced technology sectors that could enhance China's military and government capabilities. Sectors related to semiconductors, artificial intelligence (AI), and cryptographic capabilities are mentioned as targets for investment restrictions. The U.S. government's intent is to prevent American private companies from inadvertently supporting the Chinese Communist Party.

Private equity firm The Carlyle Group has set new investment limits to reduce the proportion of investments in China when investing in its Asia fund compared to before. KKR announced to investors in April last year that it would focus on the financial services sector rather than advanced technologies such as semiconductors when investing in Chinese companies.

H.K. Park, managing director of U.S. consulting firm Crumpton Global and a former Department of Defense official, explained, "Private equity and venture firms are hiring advisors to formally evaluate their existing investments in China from a national security perspective," adding, "Some investors have taken additional steps to divest from problematic Chinese companies before the executive order is announced."

Bloomberg stated, "The new measures will require U.S. companies to enhance reporting when dealing with China and grant the government new oversight authority over transactions that pose national security threats," and added, "As the Biden administration nears completion of an executive order to curb investments in China's tech industry, bets on the world's second-largest economy are expected to slow further."

This content was produced with the assistance of AI translation services.