A Study On The Problems And Strategy Of Private Equity In China

The asymmetry between investors and companies holds the transformation from savings to investment, and it also influences the effectiveness of the capital market. Companies with high risks and uncertainties, such as some new small companies, high-tech companies and also those with financial distress or with sensitive information, usually cannot get smooth investment from stock market or banks due to their severe information asymmetry. In western countries, private equity, including risk investment and non-risk investment, provides a new opportunity for those rapidly developing companies mentioned above.Recently, because of the redundancy of western funds, the continuously growing economy of China, the prediction of the appreciation of RMB currency and so on, Private Equity Funds make the surging of investment with"Chinese Concept"in domestic industries. It also brings some social problems. Research on private equity or related subjects is very limited or even blank in China. This paper uses both theoretical and empirical approach to do some research on private equity in China and tries to solve the problems it brings,based on research about how western countries are operating this. The essay hopefully could generate some benefits for domestic private equity markets.There are six chapters in this paper. Chapter 1 brings some general information about the private equity, including its concept, specialties, market structures and functions. Chapter 2 talks about the theoretical base on how to develop private equity and the how to accelerate this in China. Chapter 3 makes some researches on how western countries carry out the private equity market from the aspects of financing, investing and exiting. It emphasizes on how to evaluate the investment, how to use private equity and how to operate and monitor companies after this. Chapter 4 analyzes the present situation of private equity in China and also makes some tests with bank industry as an example. Chapter 5 analyzes the problems and potential risks that private equity may bring. It mainly discusses the reasons from local financing difficulties, a non-healthy investment system, hard to exit from the market and lack of monitoring by governments. Chapter 6 talks about the solutions of those problems mentioned above. It includes meeting the investment requirements; broaden the financing ways, making relevant laws perfect, referring to international experiences, accelerating the construction of domestic organizations, transferring the role of governments, being a qualified investors or limited partners, perfecting escaping policies, nurturing multi-level capital markets, prudently treating private equity from western markets, correcting our existing mistakes.