E-Commerce and Private Equity Booming in China

by: Ron Haruni

China's e-Commerce Is Booming

The popularity of online shopping in China, according to AFP, continues to grow as more and more Chinese are using the internet as a source for ordering goods and services. Research institute Data Centre of China Internet, said in a report that China’s Internet users spent 256.1 billion yuan (37.5 billion dollars) in the first six months of the year, up 58.2 percent from the same period in 2007.

The Beijing-based agency also mentioned the fact that “the growth is mainly attributed to fast expansion of China’s Internet population and an increase in average online consumption”.

Critics have always held the belief that e-commerce in China would never take off because, as a matter of culture, Chinese do not like it. However, during the first six months of fiscal ‘08, Chinese citizens spent an average of 211.8 yuan (31.09 dollars) each month through the Internet, up 13.9 percent from a year earlier. It’s rather obvious that skeptics fail to look at the changing demographics of China’s consumers, since sales are now being led by a younger generation that is willing to buy on credit and shop online.

China’s online population reached 221 million in February, outnumbering the amount of Internet users in the United States. According to the China Network Information Center [CNNIC], the country’s internet population grew at double-digit rates over the past three years. The growth rate of China’s internet user population has been outpacing that of the U.S., and China is projected to overtake the U.S. in the total number of users within a few years.

The Chinese Internet population may reach 263 million by the end of 2008, representing a 25 percent increase from the 210 million in 2007.


Private Equity Investments Soaring In China

Despite the ongoing credit crunch in U.S. and Europe, where private equities are finding it difficult to get the credit they need to fund their acquisitions, the private equity market in China is doing great. In fact, it expanded in the second quarter with the total value of 33 disclosed projects reaching 2.56 billion U.S. dollars, up 10.7 percent against the first quarter.

The 33 private equity investments were made in 14 industries, among which manufacturing, energy and mining industries appeared more attractive.

According to Businessweek, the surge in private equity funds in China is supported by four pillars: “the continued optimism and growth of China’s middle class in spite of inflation and the global downturn, the increasing global competitiveness of domestic Chinese firms that need expertise and capital to expand internationally, the tightening of credit from Chinese banks, and the decline of China’s stock market” (stock market downtrend and the ongoing credit squeeze create great options and opportunities for private equity firms to provide capital and get more reasonable valuations).

China’s equity investments continue to develop rapidly. Only in fiscal ‘02, the country’s total equity investments was $534 million, but it spiked in ‘06 reaching $2.18 billion. From January to September of fiscal ‘07, the investment of the private equity funds in Mainland China remained on the upward trend with the accumulative number of companies, in which investments were made, reaching 126 while the accumulative value of the investments totaled $8.37 billion, up 3.3% compared with the same period of previous year.

China has attracted an increasing number of private equity investments and dedicated funds because of its strong economic development. The country’s economy has grown at an average rate of 10% over the past 10 years. Additionally, the lower labor costs aspect and the increasing size of domestic markets continue to produced attractive opportunities for private equity funds.

Disclosure: None