Peter Fuhrman interview

Fever-Detecting Goggles and Disinfectant Drones: Countries Turn to Tech to Fight Coronavirus — Wall Street Journal

Drones spray disinfectant over South Korea. Police wear thermal imaging goggles to detect fevers in China. And a chatbot fields coronavirus questions in Australia.

The tech industry has long touted how ubiquitous connectivity, flashy gadgets and big data can improve people’s lives. The novel coronavirus epidemic is putting that bold promise to the test.

Health officials across Asia-Pacific, home to the first waves of virus contagion, have sought to repurpose existing technology to combat the fast-spreading virus. They are using smartphone-location tracking to piece together movements of suspected cases, developing government-run apps to monitor individuals’ health and keeping an eye on people’s temperature in the street with thermal goggles.

These new responses supplement traditional tactics such as quarantining sick people and canceling mass public events. But the tech-savvy tactics have yet to demonstrate broadly whether they are more game-changer than gimmick. Still, countries elsewhere might look to these solutions as the epidemic spreads.

The global number of confirmed coronavirus cases rose above 110,000 on Monday, according to data compiled by Johns Hopkins University, with infections found in 108 countries and regions.

In South Korea, the country hit hardest by the virus after China and Italy, the government rolled out a “Self-Quarantine Safety Protection” tracking app to keep digital eyeballs on the roughly 30,000 people officials told to stay home for two weeks. If a person brings their phone out of the permitted area, a mobile alert gets beamed to the individual and their government case officer.

The technology comes with a rub: It isn’t available on Apple Inc.’s iPhones until March 20. The app only works on handsets that run Google’s Android operating system used by hometown brands, Samsung Electronics Co. and LG Electronics Inc. Voluntary downloads since Saturday’s launch have been low, a government spokesman said.High-Speed Trains, International Flights: How the Coronavirus Spread

In Singapore, a Southeast Asian country hit in the early stages of the virus outbreak, health officials are asking citizens to monitor their own movements with the QR code, the black-and-white bar code used for mobile payments. A scan of these codes, found in taxis, office lobbies, tourist attractions and colleges, bring people to a webpage where they are asked to input their names, contact details and on occasion declare their health status. The voluntary scans allow authorities to reverse engineer a citizens’ whereabouts in case they fall ill or come into contact with a patient.

In Singapore’s Nanyang Technological University, where students, staff and visitors scan such bar codes to leave a digital trail of the locations they visit in the university, the data helped the university probe whether any of their 33,000 students had come into contact with a cleaning contractor who worked in the school after that person was diagnosed with Covid-19, said Tan Aik Na, a senior vice president at the university.

The system has limits. Claudia Thong, a 21-year-old Singapore university student, scans QR codes pasted on the front doors and interiors of classrooms each time she attends lessons. Some students, however, can’t be bothered to scan the codes, she said. Faculty and staff have been asked to remind their students and guests to perform the QR code check-in, the university said in a statement.

Australia’s health department directs worried citizens to a virtual assistant named “Sam.” But inquiries for “coronavirus” go unrecognized, with the site suggesting the correct spelling is the two-word, “corona virus.” A follow-up question about anxieties relating to “corona virus” produced suggestions that had nothing to do with the respiratory illness.

The chatbot will soon be updated to refer people to Covid-19 resources, an Australian health-department spokesman said.

In China, where the largest Covid-19 outbreak has occurred, cities have deployed a variety of eye-catching technologies to diagnose and contain illness. Through measures such as social distancing and isolation, China has managed to limit the outbreak mostly to Hubei province, where the infectious disease emerged and where the majority of cases have occurred.

Unmanned aerial vehicles, typically used to spot forest fires or for police surveillance, can now scan crowds in China and spot someone hundreds of feet away running a fever, said Kellen Tse, deputy general manager for Shenzhen Smart Drone UAV Co., a drone company working with two Chinese provinces. The drone, which uses thermal imaging, sends alerts about those unwell to on-the-ground officials.

“China is unlike other countries,’ Mr. Tse said. “We have a large population, that’s why we’ve turned to technology to be more efficient.”

In Shanghai, digital devices are attached to the doors of those sequestered, according to the city’s state-television channel. People are allowed to go out to empty their trash and pick up deliveries, but unauthorized door movements trigger an alarm to the neighborhood police station, a policewoman told the broadcaster in an interview.

Chinese technology firm Baidu Inc. said this month that it helped develop an algorithm for Beijing subway officials to single out commuters not wearing masks. The image-recognition algorithm, which Baidu developed and tested seven days after a request from the city’s metro administration, runs on the video feeds from subway cameras and flags individuals without a mask or who don’t wear one properly.

Shenzhen, China’s tech-manufacturing center, requests that drivers entering the city scan a QR code and leave their contact details and travel history. Police officers wear thermal helmets and goggles to identify pedestrians who may be unwell, the Shenzhen government said on social media.

But the new-age tactics have their limitations. Commercial drones can only fly for about 20 minutes before needing a lengthy recharge, and the tech-heavy defenses are expensive, said Peter Fuhrman, a Shenzhen resident and chairman of China First Capital, a boutique investment bank. He credits the conventional response of the masses of volunteers and paid monitors deployed in Chinese neighborhoods with thwarting the virus.

“Fittingly, people, not machines, made all the difference here,” said Mr. Fuhrman, who has stayed in Shenzhen since the country’s outbreak began in January.

In South Korea’s hard-hit city of Daegu, private drone companies have been deployed to help disinfect public places at the local government’s request. A single drone can load around 2.5 gallons of disinfectant and spray an area of up to 105,000 square feet—or about the size of a typical Walmart store.

“It takes about 10 to 12 minutes to use it all up,” a Daegu city official said.


https://www.wsj.com/articles/fever-detecting-goggles-and-disinfectant-drones-countries-turn-to-tech-to-fight-coronavirus-11583832616?mod=hp_lead_pos12

An insider’s view of Chinese M&A — Intralinks Deal Flow Predictor

intra

Intralinks Dealflow Predictor

 

Intralinks: The meltdown of China’s equity markets that began in the summer, despite measures by officials in Beijing aimed at calming investors’ nerves, has left many global investors jittery. Is this just a correction of an overheated market or the start of something more serious, and how would you describe the mood in China at the moment?

 

Peter Fuhrman: Never once have I heard of a stock market correction that was greeted with glee by the mass of investors, brokers, regulators or government officials. So too most recently in China. The dive in Chinese domestic share prices, while both overdue and in line with the sour fundamentals of most domestically quoted companies, has caused much unhappiness at home and anxiety abroad. The dour outlook persists, as more evidence surfaces that China’s real economy is indeed in some trouble. I first came to China 34 years ago, and have lived full-time here for the last six years. This is unquestionably the worst economic and financial environment I’ve encountered in China. Unlike in 2008, the Chinese government can’t and won’t light a fiscal bonfire to keep the economy percolating. The enormous state-owned sector is overall on life support, barely eking out enough cash flow to pay interest on its massive debts. Salvation this time around, if it’s to be found, will come from the country’s effervescent private sector. It’s already the source of most job creation and non-pump-primed growth in China. The energy, resourcefulness, pluck and risk-tolerance of China’s entrepreneurs knows no equal anywhere in the world. The private sector has been fully legal in China for less than two decades. It is only beginning to work its economic magic.

 

Intralinks: Much has been made of slowing economic growth in China. What are you seeing on the ground and how reliable do you view the Chinese official growth statistics?

 

Peter Fuhrman: If there’s a less productive pastime than quibbling with China’s official statistics, I don’t know of it. Look, it’s beyond peradventure, beyond guesstimation that China’s economic transformation is without parallel in human history. The transformation of this country over the 34 years since I first set foot here as a graduate student is so rapid, so total, so overwhelmingly positive that it defies numerical capture. That said, we’re at a unique juncture in China. There are more signs of economic worry down at the grassroots consumer level than I can recall ever seeing. China is in an unfamiliar state where nothing whatsoever is booming. Real estate prices? Flat or dropping. Manufacturing? Skidding. Exports? Crawling along. Stock market prices? Hammered down and staying down. The Renminbi? No longer a one-way bet.

 

Intralinks: What impact do you see a slowing Chinese economy having on other economies in the APAC region and elsewhere?

 

Peter Fuhrman: Of course there will be an impact, both regionally and globally. There’s only one certain cure for any country feeling ill effects from slowing exports to China: allow the Chinese to travel visa-free to your country. The one trade flow that is now robust and without doubt will become even more so is the Chinese flocking abroad to travel and spend. Only partly in jest do I suggest that the U.S. trade deficit with China, now running at a record high of about $1.5 billion a day, could be eliminated simply by letting the Chinese travel to the U.S. with the same ease as Taiwanese and Hong Kong residents. Manhattan store shelves would be swept clean.

 

Intralinks: With prolonged record low interest rates and low inflation in most of the advanced economies, many multinational companies have looked to China as a source of growth, including through M&A. Which sectors in China have tended to attract the majority of foreign interest? Do you see that continuing or will the focus and opportunities shift elsewhere? Is China a friendly environment for inbound M&A?

 

Peter Fuhrman: The challenges, risks and headaches remain, of course, but M&A fruit has never been riper in China. This is especially so for U.S. and European companies looking to seize a larger slice of China’s domestic consumer market. The M&A strategy that does work in China is to acquire a thriving Chinese private sector business with revenues in China of at least $25m a year, with its own-brand products, distribution, and a degree of market acceptance. The goal for a foreign acquirer is to use M&A to build out most efficiently a sales, brand and product strategy that is optimized for China, in both today’s market conditions, as well as those likely to pertain in the medium- to long-term.

The botched deals tend to get all the headlines, but almost surreptitiously, some larger Fortune 500 companies have made some stellar acquisitions in China. Among them are Nestle, General Mills, ITW, FedEx and Valspar. They bought solid, successful, entrepreneur-founded and run companies. Those acquired companies are now larger, often by orders of magnitude. The acquirer has also dramatically expanded sales of its own global products in China by utilizing the localized distribution channels it acquired. In Nestle’s case, China is now its second-largest market in revenue-terms after the U.S. Four years ago, it ranked number seven.

Chinese government policy towards M&A is broadly positive to neutral. More consequential but perhaps less well-understood are the negative IPO environment for domestic private sector companies, as well as the enormous overhang of un-exited PE invested deals in China. These have transferred pricing leverage from sellers to buyers in China. Increasingly, the most sought-after exit route for domestic Chinese entrepreneurs is through a trade sale to a large global corporation.

 

Intralinks: After years of being seen mainly as “an interested party”, rather than an actual dealmaker, Chinese players are increasingly frequently the successful bidder in international M&A transactions. What has changed in their approach to dealmaking to ensure such success?

 

Peter Fuhrman: Yes, Chinese buyers are increasingly more willing and able to close international M&A deals. But, the commonly-heard refrain that Chinese buyers will devour everything laid in front of them stands miles apart from reality. It seems like every asset for sale in every locale is seeking a Chinese buyer. The limiting factor isn’t money. Chinese acquirers’ cost of capital is lower than anywhere else, often fractionally above zero. The issue instead is too few Chinese companies have the managerial depth and experience to close global M&A deals. There are some world-class exceptions and world-class Chinese buyers. In the last year, for example, a Chinese PE fund called Hua Capital has led two milestone transactions, the proposed acquisition for a total consideration north of $2.5bn, of two U.S.-quoted semiconductor companies, Omnivision and ISSI. Hua Capital has powerful backers in China’s government, as well as outstanding senior executives. These guys are the real deal.

 

Intralinks: When it comes to doing deals, what are the differences between private/public companies and SOEs?

 

Peter Fuhrman: With rare exceptions, the SOE sector is now paralyzed. No M&A deals can be closed. Every week brings new reports of the arrest of senior SOE management for corruption. In some cases, the charges relate directly to M&A malfeasance, bribes, kickbacks and the like. SOE M&A teams will still go on international tire-kicking junkets, but getting any kind of transaction approved by the higher tiers within the SOE itself and by the government control apparatus is all but impossible for now. That leaves China’s private sector companies, especially quoted ones, as the most likely club of buyers. We work with the chairmen of quite a few of these private companies. The appetite is there, the dexterity often less so.

 

Intralinks: China has long been a fertile dealmaking environment for PE funds – both home-grown and international. In what ways does the Chinese PE model differ from what we see in other markets?

 

Peter Fuhrman: Perhaps too fertile. For all the thousands of deals done, Chinese PE’s great Achilles heel is an anemic rate of return to their limited partner investors, especially when measured by actual cash distributions. Over the last three, five, seven years, Chinese PE as a whole has underperformed U.S. PE by a gaping margin. It’s a fundamental truth too often overlooked. High GDP growth rates do not correlate, and never have, with high investment returns, especially from alternative investment classes like PE. If there is one striking disparity between PE as practiced in China as compared to the U.S. and Europe, it’s the fact that that Chinese general partners, whether they’re from the world’s largest global PE firms or pan-Asian or China-focused funds, too often think and act more like asset managers than investors. The 2 takes precedence over the 20.

Intralinks: What opportunities and challenges are private equity investors facing?

 

Peter Fuhrman: The levels of PE and venture capital (VC) investing activity in China have dropped sharply. What money is being invested is mainly chasing after a bunch of loss-making online shopping and mobile services apps. The hope here is one will emerge as China’s next Alibaba or Tencent, the two giants astride China’s private sector. PE investment in China’s “real economy,” that is manufacturing businesses that create most of the jobs and wealth in China, has all but dried up. Though out of favor, this is where the best deals are likely to be found now. Contrarianism is an investing worldview not often encountered at China-focused PE and VC firms.

 

Intralinks: As in many other markets, PE investors are having to deal with a backlog of portfolio companies ready to be exited. Do you feel that PE’s focus on minority investments in China could prove a challenge when it comes to exiting those investments? What do you see as the primary exit route?

 

Peter Fuhrman: Exits remain both few in number and overwhelmingly concentrated on a single pathway, that of IPO. M&A exits, the main source of profit for U.S. and European PE firms, remain exceedingly rare in China. In part, it’s because PE firms usually hold a minority stake in their Chinese investments. In part, though, the desire for an IPO exit is baked into the PE investment process in China. Price/Earnings (P/E) multiple arbitrage, trying to capture alpha through the observed delta in valuation multiples between private and public markets, remains a much-beloved tactic.

 

Intralinks: Finally, what is your overall outlook on China and advice for foreign companies and investors seeking opportunities to engage in M&A or invest there?

 

Peter Fuhrman: Yes, China’s economy is slowing. But the salient discussion point within boardrooms should be that even at 5% growth, China’s economy this year is getting richer faster in dollar terms than it did in 2007 when GDP growth was 14%. That’s because the economy is now so much larger. This added increment of wealth and purchasing power in China in 2015 is larger than the entire economies of Taiwan, Malaysia, Thailand, and Hong Kong. Much of the annual gain in China, likely to remain impressively large for many long years to come, filters down into increased middle class spending power. This is why China must matter to global businesses with a product or service to sell. M&A in China has a cadence and quirks all its own. But, the business case can often be compelling. The terrain can be mastered.

 

Download interview

Download complete report

Free Trade Zones, The Next Phase of Economic Reform — China National News TV Interview

CCTV logo

CCTV

It is the world’s most watched nightly news report, China’s CCTV 7pm evening news program, “Xinwen Lianbo” (新闻联播). Simultaneously broadcast on most terrestrial tv stations in China, it has a nightly audience estimated at over 100 million.

This past week, the level of broadcast Chinese on this news program took a brief, steep dive. The reason: a short clip of me speaking Chinese led off a news report about recent economic reforms in Guangdong Province and the introduction of pilot free trade zones in Guangdong‘s three largest cities, Shenzhen, Guangzhou and Zhuhai.

You can watch the video by clicking here. (You may need to sit through a pre-roll advertisement.) My contribution is mentioning how comparatively easy it is to register a business in Shenzhen Qianhai,  the most ambitious of Guangdong’s free trade zones.

I was out of the country in Europe when the broadcast was aired, so didn’t get to watch it live. But, I knew instantly something was going on. As I sat in a lunch meeting in Switzerland at 1:15pm (7:15pm China time), calls and messages started flooding in from friends and acquaintances watching the report in China.

 

China First Capital Interview: Cashing in and cashing out — China Law & Practice

 

China Law & Practice

Peter Fuhrman, CEO of China First Capital, explains how the country’s private equity market has struggled with profit returns and the importance of diversified exit strategies. He also predicts the rise of new funds to execute high-yield deals

Date: 05 May 2015

What is China First Capital?

China First Capital is an investment bank and advisory firm with a focus on Greater China. Our business is helping larger Chinese companies, along with a select group of Fortune 500 companies, sustain and enlarge market leadership in the country, by raising capital and advising on strategic M&A. Like our clients, we operate in an opportunity-rich environment. Though realistic about the many challenges China faces as its economy and society evolve, we are as a firm fully convinced there is no better market than China to build businesses of enduring value. China still has so much going for it, with so much more growth and positive change ahead. As someone who first came to China in 1981 as a graduate student, my optimism is perhaps understandable. The positive changes this country has undergone during those years have surpassed by orders of magnitude anything I might have imagined possible.

After a rather long career in the US and Europe, including a stint as CEO of a California venture capital company as well as a venture-backed enterprise software company, I came back to China in 2008 and established China First Capital with a headquarters in Shenzhen, a place I like to think of as the California of China. It has the same mainly immigrant population and, like the Silicon Valley, is home to many leading private sector high-tech companies.

What is happening in China’s private equity (PE) market?

Back in 2008, China’s financial markets, the domestic PE industry, were far less developed. It was, we now can see, a honeymoon period. Hundreds of new PE firms were formed, while the big global players like Blackstone, Carlyle, TPG and KKR all built big new operations in China and raised tons of new money to invest there. From a standing start a decade ago, China PE grew into a colossus, the second-largest PE market in the world. But, it also, almost as quickly, became one of the more troubled. The plans to make quick money investing in Chinese companies right ahead of their planned IPO worked brilliantly for a brief time, then fell apart, as first the US, then Hong Kong and finally China’s own domestic stock exchanges shut the doors to Chinese companies. Things have since improved. IPOs for Chinese companies are back in all three markets. But PE firms are still sitting on thousands of unexited investments. The inevitable result, PE in China has had a disappointing record in the category that ultimately matters most: returning profits to limited partners (LPs).

Read complete interview

Neue Zurcher Zeitung Interview

nzz

paper

Monday’s “Neue Zurcher Zeitung” of Switzerland published an article based on the interview I gave last week while in London with the newspaper’s financial editor Christof Leisinger. For those whose German is up to the task, click here to read the article in full.

To get a flavor of what we discussed, here are some of the quotes, in English:

China has the world’s second largest economy and capital market. GPD growth and corporate earnings are both growing far faster than in OECD countries. And yet, global institutional capital is in almost all cases seriously underweight China. How to explain this? Simple, there are just too few attractive and legal ways for international capital to invest in China.

“The Chinese companies quoted in the US and Hong Kong mainly come from two unrepresentative pools: large, slower-growing Chinese state-owned companies, and internet and mobile services “concept” stocks often with limited revenues and profits. The powerful engine of long-term economic growth in China, its millions of successful private sector entrepreneur-founded businesses serving domestic market, are almost all off-limits to non-Chinese investors. To invest, you need state approval to buy Renminbi and later permission to convert back into dollars, Euros or other freely-tradable currencies.

“China no longer especially needs or wants Western capital to finance its economic growth. The best way now to invest in China, to increase allocation there,  is probably through M&A, by putting money into US or European companies that are aggressively acquiring good Chinese private sector ones.”

“Overall, the country is doing an excellent job managing the transition from export-reliance to domestic consumption, a economic challenge Germany is still struggling with. The Chinese economy has undergone enormous structural change over the last five years, most of it positive, with more and more of economic activity coming from the private sector, rather than state-owned one, from producing and selling products to satisfy the needs of  China’s 1 billion consumers rather than those of Wal-Mart shoppers in the US.

“On the macro level I do not expect any big change anytime soon, no free convertibility for the Renminbi. But, more quietly and pragmatically, the Chinese government has solved a rather large problem related to this, by making it legal and simple now for every Chinese citizen to use Renminbi to buy up to $50,000 a year in dollars, to pay for travel, educating their children, or buy shares or other assets outside China. In other words, the capital account remains closed, but Chinese individually now have a lot of the benefits of free exchange between dollars and Renminbi. It’s one of the reasons the Champs d’Elysees and Bond Street are jammed with Chinese tourists.”

 –

Why China PE will rise again — Interview in China Law & Practice Annual Review 2013

CLP

 

Download complete text

Peter Fuhrman, chairman of China First Capital, talks to David Tring about his company’s disciplined focus, what the IPO freeze means for PE investors and how a ruling from a court in China has removed a layer of safety for PE firms

What is China First Capital?

China First Capital is a China-focused international bank and advisory firm. I am its chairman and founder. Establishing, and now running, China First Capital is the fulfilment of a deeply-held ambition nurtured for over 30 years. I first came to China in 1981, as part of a first intake of American graduate students in China. I left China after school and then built a career in the US and Europe. But, throughout, I never lost sight of the goal to return to China and start a business that would contribute meaningfully and positively to the country’s revival and prosperity.

China First Capital is small by investment banking industry standards. Our transaction volume over the preceding twelve months was around $250 million. But, we aim to punch above our weight. China First Capital’s geographical reach and client mandates are across all regions of China, with exceptional proprietary deal flow. We have significant domain expertise in most major industries in China’s private and public sector, structuring transactions for a diversified group of companies and financial sponsors to help them grow and globalise. We seek to be a knowledge-driven company, committed to the long-term economic prosperity of Chinese business and society, backed by proprietary research (in both Chinese and English), that is generally unmatched by other boutique investment banks or advisory firms active in China.

What have been some of the legislative changes to the PE sector this year that are affecting you?

The recent policy and legislative changes are mainly no more than tweaks. There has been some sparring within China over which regulator would oversee private equity. But, overall, the PE industry in China is both lightly and effectively regulated. A key change, however, occurred through the legal system within China, when a court in Western China invalidated the put clause of a PE deal done within China, ruling that the PE firm involved had ignored China’s securities laws in crafting this escape mechanism for their investment.  While the court ruled on only a single example, the logic applied in this case seems to me, and many others, to be both persuasive and potentially broad-reaching. For PE firms that traditionally added this put clause to all contracts they signed to invest in Chinese companies, and came to rely on it as a way to compel the company to buy them out after a number of years if no IPO took place, there is now real doubt about whether a put clause is worth the paper it’s printed on. Simply put, for PE firms, it means their life-raft here in China has perhaps sprung a leak.

What are some of the hottest sectors in China that are attracting PE investors?

At the moment, with IPOs suspended within China and Chinese private companies decidedly unwelcome in the capital markets that once embraced them by the truckload – the US and Hong Kong – there are no hot sectors for PE investment in China now. The PE industry in China, once high-flying, is now decidedly grounded and covered in tarpaulin. What is perhaps most unfortunate about this is that what we are seeing mainly is a crisis within China’s PE industry, not within the ranks of China’s very dynamic private entrepreneurial economy. In other words, while financing has all but dried up, China’s private companies continue, in many cases, to excel and outperform those everywhere else in the world. The PE firms made a fundamental miscalculation by pouring money into too many deals where their only method of exit, of getting their money back with a profit, was through an IPO. By our count, there are now over 7,500 PE-invested deals in China all awaiting exit, at a time when few, if any exits are occurring. Since PE firms themselves have a finite life in almost all cases, this means over $100bn in capital is now stuck inside deals with no high-probability way to exit before the PE funds themselves reach their planned expiry. The PE industry has never seen anything quite like what is happening now in China.

What is a typical day like for you at China First Capital?

We are lucky to work for an outstanding group of companies, mainly all Chinese domestic. Indeed, I am the only non-Chinese thing about the business. I am in China doing absolutely what I love doing. There are no aspects of my working day that I find tedious or unpleasant. Even at my busiest, I am aware I am at most a few hours away from what the next in an endless series of totally delicious Chinese meals. That alone has a levitating effect on my spirit. But, the real source of pleasure and purpose is in befriending and working beside entrepreneurs who are infinitely more skilled, more driven and wiser to the ways of the world and more successful than I ever could hope to be.

We are quite busy now working for one of China’s largest SOEs. It’s something of a departure for us, since most of our work is with private sector companies. But, this is a fascinating transaction that provides me with a quite privileged insider’s view of the way a large state-owned business operates here in China, the additional layers of decision-making and the unique environment that places far greater onus on increasing revenues than profits.

What do you find are some of the major issues or concerns for foreign PE clients when doing deals in China?

All investors looking to make money in China, whether on the stock market or through private equity and venture capital,  must confront the same huge uncertainty – not that China itself will stop its remarkable economic transformation and stop growing at levels that leave the rest of the developed world behind in the dust. This growth I believe will continue for at least the next 20 years. The big unknown has to do with the actual situation inside the Chinese company you are buying into. Can the financial statements and Big Four audits be relied on? Are the actual profits what the company asserts them to be? How great is the risk that investors’ money will disappear down some unseen rat hole?

Some frightening stories have come to light in the last two years. How widespread is the problem of accounting fraud in China? Part of the problem really is just the law of big numbers. With a population almost triple that of the US and Western Europe combined, China has a lot of everything, including both remarkable businesses run by individuals who are the entrepreneurial equal of Henry Ford and Steve Jobs, and well as some shady operators.

What is your outlook for China’s PE sector in the coming 12 months?

I believe the current crisis will abate, and stock markets will once again welcome Chinese private sector companies to do IPOs. The IPOs will be far fewer in number than in 2010, but still the revival of IPO exits will also thaw the current deep-freeze that has shut down most PE activity across China. PE firms will again start to invest, and put a dent in the $30 billion or more in capital they have raised to invest in China but have left untouched. The PE industry in China, since its founding a little more than a decade ago, grew enormously large but never really matured. There are now too many PE firms. By some count, the number exceeds 1,000, including hundreds of Renminbi PE firms started and run by people with no real experience investing in private companies. Their future appears dire. At the same time, the global PE firms that bestride the industry, including Carlyle, Blackstone, TPG, KKR, have yet to fully establish they can operate as efficiently and profitably in China as they do in Europe and the US.

While the China PE industry struggles to recover from many self-inflicted wounds, China’s private sector companies will continue to find and exploit huge opportunities for growth and profit in China, as the nation’s one billion consumers grow ever-richer and ever more demanding.