Article

Private Equity and Venture Capital Global Journal of Emerging

Market Economies
in China in the Aftermath of the 1–11
© 2020 Emerging Markets Institute,
Sino-American Trade Disputes Beijing Normal University
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DOI: 10.1177/0974910119896643
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Maria Alejandra C. Madi1

Abstract
In the last decade, private equity and venture capital funds have shifted to the Asia-Pacific region. This
article aims to contribute to the understanding of the trends in fundraising and capital allocation in the
context of the US–China trade disputes and, therefore, to fill the gap in the literature on private equity
and venture capital industry.

Keywords
Private equity funds, venture capital, US–China trade disputes, Asia-Pacific region, investment flows,
fundraising, capital allocation

Introduction
As a result of the extraordinary acceleration of globalization, since the 1970s, trends in capital accumula-
tion at the system level favored a redefinition of domestic industrial structures and expansion of global
supply chains. Global economic integration has reoriented productive investments and plants, moving
decisions toward investment in worldwide scale (Hobsbawm, 2007). Looking back to the early 1970s,
the USA favored the Chinese financial policies to support its Cold War strategy against the USSR. From
the 1980s onwards, China quickly created export sectors relying on the “special economic zones” open to
investment inflows, under the conditions mainly set and negotiated by the Chinese government with the
corporations. In this scenario, foreign firms engaged in joint ventures with the Chinese ones that could
develop managerial skills and technological innovation. In truth, the Chinese firms could license and
adopt foreign technologies under favorable conditions. The resulting businesses exported to the US market,
where the neoliberal agenda mainly produced salary stagnation and a demand for low-priced products.
In the early 2000s, the Clinton administration gave the status of “Most Favored Nation” to China and
endorsed its entry into the World Trade Organization. At that moment, the shift of China toward eco-
nomic liberalization was understood by the USA as necessary to integrate China into the economic and
geopolitical order led by the USA.

1
Green Economics Institute Academy, UK.

Corresponding author:
Maria Alejandra C. Madi, Green Economics Institute Academy, 6 Strachey Close Reading, RG8 8EP, UK.
E-mail: alejandra_madi@yahoo.com.br
2 Global Journal of Emerging Market Economies

Indeed, throughout Bush and Obama administrations, the American bilateral diplomacy attempts
aimed at drawing China into the global system under the American leadership (Bader, 2013). In this
context, other target was to draw support from China on environmental and security issues. Nowadays,
the American goal is to prevent China from becoming a coequal global power with economic and politi-
cal force. However, according to Cheng Li, this strategy is likely to fail (Li, 2017, 2018).
Considering this background, it is worth noting that the US–China relations may have entered their
most difficult period since their normalization in 1979 (Gros, 2019). Indeed, more than any other trade
dispute, what happens between the USA and China will shape the map of the global political and economic
order in the twenty-first century (Mildner & Schmucker, 2019). Beyond Donald Trump’s National
Security Strategy of 2017, there is an underlying new Washington consensus for “strategic competition”
with China (Cheung-Miaw & Elbaum, 2019; Dollar, 2019). According to the American Agenda of
2018 and of 2019, the trade policy must be in harmony with the country’s national interest and security
strategy (Office of the United States Trade Representative, 2019).
Some factors characterize the American shift from engagement to confrontation since China is sup-
posed to be managing its global integration in its “own” way. Because of China’s financial, technologi-
cal, and growing military capacity since its turn toward “reforming and modernizing” in the post-Mao
era, the nation is now the world’s second largest economy and is expected to surpass America as number
one in 10 to 20 years. Indeed, this was reinforced by the “Made in China 2025 strategy,” which aims to
make the country a “manufacturing superpower.” On the other side of the dispute, the USA aims to keep
its global hegemony by any means possible despite its relative decline in weight in the current multipolar
global economy. In this setting, the American complaints about trade imbalances and tariffs are con-
nected to the restrictions on international capital established by Chinese regulations laws.
The impact of the US–China tariff disputes is reverberating into the private equity (PE) and venture
capital (VC) industry, making the cross-border investment flows and deals looking vulnerable. In the
new scenario, private equity and venture capital funds continued to attract an impressive amount of
capital in 2018, though it fell off the pace from 2017’s record-breaking performance. Considering that
trade conflicts are not only related to the US trade deficit with China, but these conflicts also refer to the
evolution of global capital flows, this article aims to fill the gap in the existing literature in order to con-
tribute to the understanding of capital flows fundraising in the private equity and venture capital industry
in the context of the US–China trade disputes.
This subject matter is important since China-based private equity funds back major investments
and buyouts in the Asia-Pacific region. A slowdown in fundraising will affect private companies’
funding plans and investors’ exit options, especially in the Internet and IT sectors, which have histori-
cally received huge amounts, the bulk being mainly from private capital. On one hand, this trend may
also affect the revaluation of companies that investors consider expensive; on the other hand, while
this trend may be beneficial for new investments into stable companies as investors may see them as
safer options, challenging times are ahead for start-ups that need funding to expand and prove their
business models.
Following the “Introduction” section, the second section outlines the literature review on the process
of private equity globalization. The third section takes into consideration the shift of private equity firms
to the Asia-Pacific region in the last decade. The fourth section discusses the evolution of private equity
and venture capital funds in terms of fundraising and capital allocation after 2017. In the fifth section,
considering the interconnections between trade and investment flows, this article sheds light on how the
US–China trade disputes have already affected the sectorial focus of private equity investments while
favored the growth of venture capital deals and dry powder in China.
Madi 3

Private Equity Globalization: Setting the Scene

Nowadays, the USA is still home to the greatest number of top private equity funds, followed by Western
Europe and then China. Table 1 shows the five biggest private equity funds in the world, considering
total assets under management in 2019 (Rosemberg, 2019); the Blackstone Group is followed by Carlyle
Group, Kohlberg Kravis Roberts (KKR), Bain Capital, and TPG Fort Worth.
Considering risk management strategies, diversification is a relevant tool to reduce risk in the private
equity industry. As a result, the five major countries in global private equity deal volume in 2017 have been:
USA (55%), Britain (10%), China (8%), Australia (4%), and Germany (2.4%). The Preqin (2017b) survey
showed that among the intentions of investors, 69 percent of them believed that North America provides
the best opportunities, while nearly a third of respondents believe Asia will increase in importance.
According to Preqin Global Private Equity & Venture Capital Report (2017a), the industry has pre-
sented a trend toward greater concentration of total assets under management, while the largest funds
account for a greater proportion of overall fundraising. On behalf of the recent greater capital concentra-
tion, the average size of private equity funds has grown from US$384 million in 2016 to US$535 million
in 2017. In addition to the increasing volume of capital raised, there has been a trend toward huge capital
overhang or dry powder—an increase in the amount of accumulated capital that is still searching for
profitable deals. Despite the steady pace of investment, private equity and venture capital “dry powder”
has been on the rise since 2012 and hit a record high of US$2 trillion at the end of 2018 across all fund
types (US$695 billion for buyouts alone). This amount of “dry powder” has certainly put upward pres-
sure on asset prices in mergers and acquisitions.
Taking into account the trends in private equity fundraising as of January 2018, North America con-
tinues to dominate with 50 percent of the number of funds and 45 percent of the total capital raised.
However, Asia-focused funds represent 7 of the 10 largest funds that correspond to over a third of total
capital. Outside North America, Europe, and Asia, private equity funds faced a particularly tough year in
2017: 56 percent of the capital raised were from general partners based in Africa, Latin America, the
Middle East, Israel, or Australasia. Over half of the funds closed in 2017 were of the VC type, followed
by growth (23%) and buyout (14%). Table 2 outlines the findings about the aggregate capital targeted by
geographical focus in January 2018.
On behalf of quantitative easing policies, the low levels of loan pricing, and the active strategies of
lenders, the performance of debt markets has been encouraging general partners (GPs) to make deals
despite the high prices in recent years (Bain & Company, 2019a). As a result, debt multiples have been
observed 10 years after the global financial crisis. It is worth remembering that, in the aftermath of the
global crisis, regulators discouraged multiples of six times earnings before interest, taxes, depreciation,

Table 1. Private Equity Firms: Total Assets Under Management (2019)

Rank Private Equity Firm Total Assets Under Management (US$)

1 Blackstone Group 457 billion
2 Carlyle Group 201 billion
3 KKR (Kohlberg Kravis Roberts) 195 billion
4 Bain Capital 105 billion
5 TPG Fort Worth 70 billion
Source: Madi (2019).
4 Global Journal of Emerging Market Economies

Table 2. Private Equity Funds: Global Geographical Focus, January 2018

World Region Number of Funds Aggregate Capital (US$ Billion)

North America 1,152 338
Europe 372 99
Asia 509 266
Rest of the World 263 41
Source: Madi (2019).

and amortization (EBITDA). However, Trump era’s more relaxed regulatory environment has fostered
the increase of the share of deals with multiples higher than seven times EBITDA to almost 40 percent
of the total. In other words, the real leverage level associated with many private equity deals is the result
of banks’ high-risk tolerance.
In addition to these trends, there has been heavy competition for profitable assets, and the value of
deals has increased. Large deals, especially of very large carve-out transactions helped boost deal value
in North America by 22 percent in 2018. The largest buyout was the US$17 billion carve-out of Thomson
Reuters’ Financial & Risk unit, led by Blackstone and the Canada Pension Plan Investment Board. Large
public-to-private (P2P) deals, like KKR’s US$9.6 billion leveraged buyout (LBO) of Envision Healthcare,
also contributed to push the value of these deals globally to its highest level since the previous boom in
2006–2007. Sponsor-to-sponsor deals also grew in 2018, especially in Europe, where deals between
private equity funds have been predominant in both value and deal count since 2010. For instance,
Partners Group led a consortium in the acquisition of Techem, a global leader in heat and water services,
from Macquarie. EQT acquired Azelis, a global distributor of specialty chemicals and food ingredients,
from Apax Partners (Bain & Company, 2019a).
Indeed, the dynamics of the global private equity industry has been recently characterized by abun-
dant capital that has been lent on easy terms, rising asset prices, and an uncertain economic outlook. The
2019 Bain report also highlights that many general partners have been interested in selling assets because
of the forecast about economic weakness. Consequently, in 2018, the median holding period for buyouts
fell to 4.5 years, after achieving the peak of 5.9 years in 2014. After several years of global stock market
volatility, buyout funds continued to outperform public equity markets in all major regions, over both
short- and long-time horizons. However, buyout returns in the current cycle have not been as high as they
were before the global crisis. As the overall PE industry has matured, it has become more competitive,
and the outsize returns are more difficult to achieve (Madi, 2019).
In short, the private equity industry’s structural challenges—high value deals and competition—are
combining with macro uncertainty, accelerating digital innovation, and US–China trade disputes. As a
result, the general partners of the private equity funds (GPs) are rethinking geographic and sectorial
diversification, company management and value-creation plans, legal practices, digital disruption, and
negotiations in the supply base. Among the new strategies, GPs need to build new capabilities, like
advanced analytics, or reinforce merger integration.

The Shift to the Asia-Pacific

In the postwar boom era of 1945 to 1971, the US surplus was at the center of the global economic
order. After the 1970s, this system of international flows changed, and the financial interdependence
between the USA and China has been increasing (Varoufakis, 2013). The USA has had a large deficit in
Madi 5

merchandise trade with China, while China is the greatest creditor of the USA. Considering this unbal-
anced trade and financial scenario, the American President Donald Trump highlighted that it had mostly
resulted from China’s unfair trade practices, such as subsidization of domestic companies, overcapaci-
ties, forced technology transfer, and theft of intellectual property rights, protection, and promotion by a
wide range of industrial policies. For instance, between 2001 and 2018, the USA had filed 64 dispute
settlement cases before the WTO against 18 countries and the European Union (EU), with the highest
number (23) against China, followed by 9 against the EU. In contrast, in the same time period, China had
filed only 22 cases against 3 countries and the EU, 15 of which were against the USA. However, the
increase in US imports from China can be explained by the relocation of production facilities from other
(primarily Asian) countries to China and its place in global value chains. In this global context, according
to Madi (2019), there has been a private equity shift to the Asia-Pacific region, where China turned out
to be the most attractive emerging market private equity destination, followed by India.
According to the Bain and Company report (2019b), private equity has grown sharply in Asia-Pacific
over the past decade and is assuming a larger global role since Asia-Pacific-based PE funds have US$883
billion under management that represent 26 percent of the global private equity market in 2018. In 2008,
that share was 17 percent. Looking back, there has been a shift to the Asia-Pacific region in the last dec-
ade that needs to be understood in the historical context of the US–China relations. Within the region,
private equity investments have been more balanced geographically. Despite the relevant role of Greater
China, that accounted for 45 percent of the private equity activity, India and Japan each represented more
than 10 percent of total deal value.
In accordance to Preqin (2018), the capital concentration trend seen in both North America and
Europe has also been observed in Asia, where funds took the higher global average period of 16 months
to be closed in 2017. While Asia-based general partners invested 78 percent of capital on the region,
China and India remained relevant for vehicles for different investment strategies (Bain & Company,
2018). Table 3 shows a sample of the 2017 private equity deals in the Asia-Pacific region by type and
geographical focus.
As of 2017, Asia-Pacific-focused funds held 23 percent of global PE assets under management, a
record from the market share of 9 percent a decade ago. In the same year, the number of Asia-Pacific
funds amounted to 194, with average sizes of US$340 million, while in the period 2012–2016, the aver-
age number was 325, with average size of US$190 million.
A key driver of the concentration trend has been the expansion of consortium transactions that
enhanced private equity megadeals over US$1 billion. In this scenario, P2P deals amounted 17 percent
of total Asia-Pacific deal value, and the EBITDA multiples remain higher than the current US average of
10.3. The total value of private equity deals increased to 17 percent of Asia-Pacific mergers and acquisi-
tions transactions, while P2P deals more than doubled.

Table 3. Asia-Pacific Private Equity: Fund Type and Geographical Focus, 2017

PE Firm Main Fund Type Geographical Focus

KKR Buyout Regional
CITIC private equity Multistrategy China
Asia alternatives management Fund of funds Regional
Baidu Expansion/large stage China
Quadrant private equity Buyout Australia/New Zealand
Source: Madi (2019).
6 Global Journal of Emerging Market Economies

Table 4. Private Equity Funds: Investment Data by Geographic Focus, 2012–2017

Average Deal in Value

PE Investment Value Deal Count (US$ Million)
Period/Geographic 2012–2016 2012–2016 2012–2016
Focus Average 2017 Average 2017 Average 2017
Greater China 47 73 444 569 105 128
Japan 7 25 48 69 141 504
Southeast Asia 7 20 62 70 114 284
India 13 20 221 184 58 106
South Korea 10 13 77 91 126 140
Australia/New Zealand 9 9 47 51 184 175
Source: Madi (2019).

Greater China (China, Hong Kong, and Taiwan) has been attracting higher levels of capital since
2017, while Japan and Southeast Asia gained market share in fundraising. The investors’ interest in the
region has fostered the levels of dry powder, also in venture and growth PE types. Table 4 shows other
relevant findings about the private equity deals in the region.
Higher valuations are also part of the private equity investment trends. The Internet and technology
sectors attracted 46 percent of the deal volume in 2017, while this percentage was 22 percent in 2012.
Among the investments, some examples include SoftBank Capital’s investment in Flipkart Online
Services in India and the Singapore-based Grab deal led by a consortium of investors including Toyota’s
Next Technology Fund and SoftBank Capital. Investors also continued to focus on consumption-related
sectors, including consumer products, retail, and healthcare. As the general partners have searched to
gain more control over the portfolio companies in the Asia-Pacific region, buyouts represented 45 per-
cent of deal value in 2017, while venture capital deals have been growing. Indeed, presently China ranks
as the world’s second largest venture capital market behind Silicon Valley. And India has also been
expanding the market in terms of venture and growth deals. From 2014 to 2017, the comparison between
private and public companies showed that private equity buyouts and growth funds outperformed the
public companies in the short- and long-term term.
Moreover, the Bain 2018 Asia-Pacific Private Equity survey highlights that the value and number of
exits (710) rose in all countries across the region, showing particularly strong rebounds in Southeast
Asia, South Korea, and India. Among the trade exits, Anchorage, Oaktree, TPG, and York Capital led the
divestment of Alinta Energy (Australia); Bain Capital, Goldman Sachs, and Lee Song-ok led the exit of
Carver Korea (South Korea); and Goldman Sachs, MBK, PAG, and Owl Creek led the exit of Universal
Studios Japan (Japan). Singapore’s sovereign wealth fund, GIC, led the largest exit with the sale of
Global Logistic Properties that included trade and secondary exit channels. In this setting, secondary
sales (exit to another PE owner) also increased, and the Initial Public Offerings (IPOs) followed the
historical average.
Table 5 outlines key features of the market outlook. Selected data from Table 5 suggest that higher
deal values will be a probable trend in the Asia-Pacific region. In this scenario, the creation of value and
competitive advantages in private equity portfolio companies will increasingly rely on building com-
mercial excellence, including customer segmentation, product offerings, pricing, and sale channels,
improving management skill and adopting digital technologies, market data strategies, Big Data, analyt-
ics, and connectivity. However, organization challenges have also been key drivers of exit failures.
Madi 7

Table 5. Private Equity Funds: Sector Allocation and Market Outlook, 2017

Sector Allocation
Greater China Internet, logistics,
consumer, and services
India Internet and technology
Japan Technology
Australia Health care
South Korea Consumer, retail, energy,
and natural resources
Source: Madi (2019).
Market Outlook
Investment Flows Competition
Buyout and path to control dry Growing competition
powder
More balanced sector focus High valuation and competition
Improvements in exit channels Concerns about LPs investing
directly
Non-core diversification strategies Increasing competition
Larger transactions
High expertise and fundraising Concerns about LPs investing
availability directly
Higher prices of deals
Strong flows Higher deal valuations and
competition

Among the organization challenges, we can consider the lack of managerial skills, bad-dimensioned
plans, and the lack of alignments between general partners and the managers of the portfolio companies
(Bain & Company, 2018).
Moreover, venture capital has been growing in Southeast Asia, with more than US$7.8 billion invested
across 327 deals in 2018, Grab, the Thailand-based on-demand delivery platform Lalamove and
Singapore-based beauty marketplace Zilingo. Mobile payment technologies and platform businesses
have been the most attractive to investors on behalf of high demand for mobile payments and other digi-
tal financial services.

Rethinking Strategies
In the last years, private equity funds in Asia-Pacific rely on growth (organic or buy and build strategies)
and on operational excellence. In that context, Australia continues to be considered the most attractive
buyout market, particularly in the small-to-mid-market segment, where prices remain reasonable. In
addition to sector-focused investment strategies, there has been renewed interest for the mid-market seg-
ment (Preqin, 2018).
Challenges are increasing for private equity in the Asia-Pacific with the risk of global recession and
the US–China trade dispute: on top of these challenges, the US–China trade tensions and the growing
competition among private equity funds. In this scenario, not only the market for exits may get tougher,
but also the process of fundraising and capital allocation. Indeed, the US–China trade dispute face an
Asian private equity market more matured where more GPs are focusing active strategies to add value to
their businesses during the holding period. In this context, sector specialization mainly in health care,
business services, and consumer strategies offers the best value-creation prospects.
Indeed, a decline in funds raised, trade tensions, and rising interest rates is among negative factors
facing the private equity industry, according to Bain and Company (2019a). After the record of US$165
billion in terms of value deals in 2018, overall fundraising declined more than 50 percent to
8 Global Journal of Emerging Market Economies

US$75 billion in the Asia-Pacific region. In a business context where China accounts for 32 percent of
Asia-based investors, the number of funds closed each year has been on the decline since the peak in
2015, and larger funds have entered the market, such as the Asia-focused PE fund, Carlyle Group’s buy-
out fund, and Carlyle Asia Partners V, closed in 2018. However, the uncertainties around the allocation
strategies of Asia-focused private equity managers have led to a record of US$246 billion in dry powder
available as in December 2017 and 71 percent higher from 2016.
Taking into account this background, the allocation strategies of large private equity funds, like
American Limited Partners, show that they are gaining exposure through non-US-based general part-
ners. In this scenario, the uncertainty that overwhelms the US–China trade dispute is creating opportu-
nity for more corporate carve-outs as the biggest PE firms are rethinking what is really profitable in
terms of sectorial allocation in China. So far, the biggest PE firms, like Carlyle and KKR, are mainly
investing in health care, technology, media and telecommunications (TMT), and consumer services.
Table 6 highlights the sectorial capital allocation of the private equity fund Carlyle in China. Consumer
services, industrial technology, and health care are the main sectors.
Indeed, in the context of the US–China trade tensions, manufacturing has not been a target of private
equity (PE) investments. Taking into account the global uncertain outcomes of the dispute on future cash
flows and investments, the PE equity firms with significant investments in the manufacturing and distri-
bution industry related to supply chain operations have been the most affected. As a result, the strategies
of the fund managers of American PE funds moved toward a deceleration of the volume of deal flows in
these manufacturing businesses, especially those that mainly depended on China. In short, the strategies
of Blackstone, KKR, and Carlyle PE firms in China do not seem to follow the “old model” of globaliza-
tion, where USA used to buy low value-added Chinese goods, and China used its capital account surplus
to buy US assets (Business Wire, 2018; Mcvey, 2018; China Money Network, 2019). In this new
scenario, future changes in the dynamics of global supply chains will have far reaching implications
beyond US–China trade relations (Cox, 2018; Chatterjee & Zhu, 2018; Wright & Chew, 2018).
Regarding the TMT sector, intense competition, rapid growth, and diversification of their core prod-
uct or services are part of this business sector. Chinese Internet and technology firms have been capturing
a growing share of global private equity and venture investment. Over the period between 2010 and
2018, Internet and technology deals have accounted for roughly 85 percent of Greater China’s private

Table 6. Carlyle Group in China: Sectorial Allocation and Portfolio Companies (2019)

Sector Portfolio Companies

Healthcare Adicon Holdings Limited and MicroPort Scientific Corporation
Financial services Ant Financial and Du Xiaoman Financial
Telecom and media Asia Satellite Telecom Holdings and Focus Media
Consumer and retail China Fishery Group Limited, Grand Foods Holdings Limited,
Luolai Lifestyle Technology, and OneSmart Education
Technology and business services China Literature Limited and Fang Holdings Limited
Transportation Greater China Intermodal Investments LLC, Shanghai Lantu Information
Technology Co., Ltd.
Industrial JD Logistics
Infrastructure Shanghai ANE
Source: Compiled by the author, adapted from The Carlyle Group (2019).
Madi 9

equity and venture capital growth. In this scenario of high competition, China’s Internet giants have
acquired companies in financial services, gaming, education, health care, and artificial intelligence. It is
also worth noting that Greater China is now producing start-ups valued at US$1 billion or more (uni-
corns) at a faster pace than the USA.
Venture capital funds have continued to grow after 2017 with start-ups emerging through increased
demand for technology and the investment opportunities. Global investment into Chinese start-ups
amounted to US$81 billion—the total investment of global venture capital grew 32 percent in 2018,
while the rate of growth was 28 percent in 2015. Moreover, in 2017–2018, more than 800 PE investors
had bought a stake in an Internet or technology business in China (Yamashita, 2019). As a result, the
average deal size rose from US$30 million in 2013 to US$213 million in 2018. One of the drivers of this
evolution has been the behavior of Chinese consumers toward new products and online services. As of
2018, the number of Internet users in China has surpassed US users in adopting new apps for online
entertainment, payments, education, and travel services.
Nevertheless, in 2018, fundraising fell sharply, and this gave rise to concerns about overheating
investment in the Chinese Internet and technology sector, often referred to as the new economy, where
companies are expanding mobile Internet projects, like online shopping platforms and other web-based
services including ride-hailing, food delivery, and online financial services. In particular, two-thirds of
Greater China private equity investors are increasingly assessing the risks of China’s Internet-based
“new economy” sector, described as a “speculative bubble” that may burst (Bain & Company, 2019a).
The average deal size in that sector increased to US$213 million in 2018 from US$30 million in 2013,
since the huge volume of private equity and venture capital flowing into China’s new economy has over-
saturated the smaller deals, prompting investors to seek larger investments.
According to the Asia-Pacific Private Equity survey (Bain & Company, 2019b), the challenges are
relevant. First, 65 percent of those surveyed see a high risk of a bubble bursting in the coming years.
Second, 85 percent of those surveyed consider it difficult to evaluate new-economy companies in a con-
text where Internet and technology deals are already overpriced, and falling returns are challenging exit
opportunities. It is worth remembering that, between 2013 and 2018, private equity and venture capital
funds acquired more than 1,000 Internet and technology companies in Greater China with a value higher
than US$10 million, but the process of divestment has been difficult.
Between 2017 and 2018, companies that went public had lost value in the first 12 months after the
IPO, while companies that had been public between 2015 and 2016 gained an average value of 105 per-
cent in the first 12 months after the IPO. The exit difficulties do certainly put pressure on the manage-
ment of the overhang capital or dry powder within the private equity industry.

Final Considerations
The US–China trade dispute has enhanced new risks in an uncertain global scenario since trade ten-
sions have started to affect those strategies related to future fundraising and capital allocation. The
impacts on investment flows of escalating trade barriers between the USA and China should be con-
sidered in terms of fundraising and capital allocation strategies. In this context, manufacturing has not
been a target of private equity investments, while the relevance of venture capital deals has been grow-
ing. Moreover, the increase in the amount of accumulated capital that is still searching for profitable
deals cannot be neglected.
In this context, the strategies of the private equity industry do not seem to follow the “old model” of
globalization, where the USA would buy low value-added Chinese goods, and China used its capital
10 Global Journal of Emerging Market Economies

account surplus to buy US assets. Moreover, the shift toward a more protectionist agenda represents a
secular change in international relations, and the new strategies may have long-term implications for
both businesspeople and investors. As a result, despite the challenges, private equity and venture capital
allocation in China may be focused on health care, consumer services, technology, and media and
telecommunications.

Declaration of Conflicting Interests

The author declared no potential conflicting interests with respect to research, authorship, and/or publication of this
article.

Funding
The author received no financial support for the research, authorship, and/or publication of this article.

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