Private equity firms plan cuts in China to escape property woes, economists expect fiscal support

China private market fundraising has slumped more than 60 per cent year-to-date from 2020. PHOTO: AFP

LONDON (BLOOMBERG) - Private equity investors are cooling on China, pulling back from real estate amid mounting troubles at some of the nation's biggest developers and with many also planning to cut bets on start-ups.

Among international investors a third will reduce their exposure to Chinese real estate funds over the next three years with none planning an increase, according to a survey by alternative asset manager Coller Capital.

When including buyouts, venture, infrastructure, and private credit, there was an even split between increasing or cutting investments in China, Coller said after surveying more than 100 investors.

Major developers such as China Evergrande Group are struggling to stay afloat after a multi-year push by Beijing to reduce leverage and cool the nation's frothy property market.

Adding to the chill for investors has been a broad campaign in China to rein in private businesses, including the nation's big technology firms and private education companies.

China private market fundraising has slumped more than 60 per cent year-to-date from 2020, according to data compiled by Preqin. The survey found that about a third of the investors plan to increase their allocations to Asia Pacific outside of China. The biggest increases will be in buyout, infrastructure and venture capital, the report said.

Economists now predict China will start adding fiscal stimulus in early 2022 after the country's top officials said their key goals for the coming year include counteracting growth pressures and stabilising the economy.

Curbs on the property industry are expected to remain, while there could be fewer regulatory surprises compared with sudden moves in 2021 to rein in sectors from technology to education and entertainment, the economists said.

At the end of their three-day annual Central Economic Work Conference, the Communist Party's top decision makers on Friday (Dec 10) said the top priority for next year is "ensuring stability."

They also vowed to "front load" policies and keep the monetary stance flexible and appropriate. "Fiscal policy is expected to play a main role in supporting growth next year," said Mr Ding Shuang, chief economist for Greater China at Standard Chartered, while housing policies will see "fine tuning" rather than a major shift, he added.

The economy has slowed in recent months because of the worsening property market slump, weak consumption growth, and repeated outbreaks of Covid-19, which have damaged businesses and consumers' confidence.

The meeting's relatively hawkish language on real estate suggests that the drag from property will mostly persist. Policy for most of this year had been focused on curbing financial risks and reducing debt in the economy, and developer China Evergrande Group last week became the largest casualty of President Xi Jinping's campaign to tame over-leveraged conglomerates and the overheated property market.

A call for counter-cyclical policies was the first time Chinese authorities have used the phrase this year, Barclays analysts wrote in a note. That "should help ease market concerns of a sharp slowdown in economic growth," they said.

Economists forecast growth to slow to 3.1 per cent in the current quarter, a deceleration from 7.9 per cent in the April-June period and 4.9 per cent in the last quarter. An official target for gross domestic product growth next year will only be revealed at the annual parliament meeting in March, and analysts predict authorities will do more to ensure growth will reach around 5 per cent.

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