The Difficulties Faced By Foreign Private Equity Investment In China M & A,

Along with the opening-up and development of China economy and its connecting with global economy, many kinds of capital investment entities such as PE and VC quickly and gradually involve into Chinese market. The PE and VC are the investment funds which collect funds from the organizations or personals that could bear and identify the risks, and then they invest unlisted company or the un-open part of the listed company. Between which, PE, mainly invests business with a certain scale in mature period, becomes to more and more influence the economy and the development in China. It shocked the market by some big deals such as HuaPing acquired Ha Medicine and Carlyle invested CPIC, etc. Even Lenovo's acquisition of the PC department of IBM had three PE funds to be involved. But, except these brilliant successes, there are many difficulties in many M&A cases such as Carlyle acquire XCMG (Xuzhou Construction Machinery Group Co., Ltd.). Given such conditions that the local PE development is slow-moving, it is highly meaningful to study the difficulties that foreign PE funds met in domestic, although these PE funds have reached great achievement abroad. It can also speed up our pace to attract the investment from overseas, deepen the cooperation with foreign capitals, accelerate the optimization of the financial system in China and strengthen the competitiveness of domestic enterprises.Based on the practical experience of the author and the analysis of the famous cases, we could sort out three main macro difficulties that the foreign PE funds would likely to face in China:First, the difficulty from state-owned shares M&A deals:As the special share structure in China, the state-owned shares played a significant role in China economy in the past. Foreign PE will face lots of difficulties on valuation, communication, approval and integration in state-owned shares deals.Second, the difficulty from policies and rules:This kind of difficulty is ubiquitous among the deals of foreign PE funds. It includes the discommodious half-opened financial system in China, the imperfect policies, rules and law.Third, the difficulty relates to the "people":This is mainly represented by the lack of finance and legal senses in the businessman's world in China.Concerning the macro difficulties, we will continue to pay attention to different micro difficulties encountered in each industry and each specific deal. We will list particular difficulties and characteristics of five industries including chemical, auto, port, media and packing below and briefly discuss different difficulties in each specific deal.After summarizing the difficulties above, the writer will use the acquisition cases of a private enterprise and a famous state-owned company to indicate the universality of macro difficulty and the particularity of micro difficulty.After the analysis above, we could see that because of historic reasons, state-owned companies have complicate historical problems such as intricate government supervision, state-owned shares problems, etc. For private newly founded companies, the problems are different as the illegibility of share structure, lack of financial and legal cognition and construction, unclear of financial systems, etc. Under these circumstances, foreign PE funds will have to face these big challenges due to the different history and culture from abroad. While facing the opportunity, they are also facing challenges of these difficulties.Due to the obvious trend of economic globalization, reformation and opening of China economy, these difficulties stated above should be solved gradually. As a result of the efforts of Chinese government to deeply reform the organization and mechanism, learn and innovate the financial system, practice the full circulation, improve the enterprisers' educational level and absorb the experiences from international finance and law, China will connect with the advanced international capital. In the mean time, we will treat the M&A deals from the foreign PE firms more professional and effectively, speed up our capital market construction and enterprises development, and benefits every Chinese from the speedy development of China economy finally.