2009-12-14-Bain-The_social_and_economic_impact_of_private_equity_in_China_28页_1mb

Summary of "The Social and Economic Impact of Private Equity in China" (2009 Survey)

Core Content

This 2009 survey conducted by the European Union Chamber of Commerce in China in partnership with Bain & Company evaluates the social and economic impact of private equity (PE) in China. It highlights how PE firms contribute to economic growth, job creation, innovation and corporate governance, while also supporting the government's "Go West" policies by directing investments to inland provinces.

The survey focuses on the performance of 100 PE-backed companies, representing over 50% of all private equity investments in China between 2002 and 2006. These companies were tracked from 2002 to 2008 to assess long-term impacts. The findings are compared to 2,424 publicly listed companies in China, providing a benchmark for evaluating PE's role in the economy.

Main Points

Social Impact

1. Job Creation and Compensation

   • PE-backed companies created more jobs and offered higher wages than publicly listed companies.
   • Total employment at PE-backed companies increased by 16% compared to 8% at listed companies.
   • Gross salary growth rates at PE-backed companies outperformed listed companies by seven percentage points.
   • PE-backed companies also hired more highly educated employees, contributing to improved job quality.

2. Innovation and R&D Spending

   • PE-backed companies invested significantly more in R&D compared to listed companies.
   • R&D spending at PE-backed companies was 1.8% of revenue, over two-and-a-half times that of listed companies.
   • PE investors set clear innovation priorities and introduced best practices to enhance R&D productivity.

3. Support for "Go West" Policies

   • PE investments were not limited to coastal regions but also flowed to inland provinces.
   • In 2008, 42% of PE investments were directed to companies in inland provinces.
   • This trend supports the government's efforts to develop the interior of China.

Economic Impact

1. Revenue and Profit Growth

   • PE-backed companies achieved higher revenue and profit growth than listed companies.
   • Revenue growth for PE-backed companies was 3% higher annually.
   • Profit growth for PE-backed companies was 39% annually, compared to 25% for listed companies.
   • PE-backed companies generated RMB 535 billion in revenue in the year of investment and RMB 867 billion two years later.

2. Corporate Governance and Tax Contributions

   • PE-backed companies demonstrated better corporate governance, with increased transparency and tax disclosure.
   • Tax payments from PE-backed companies grew at a 28% compound annual rate, 10 percentage points higher than listed companies.
   • PE-backed companies often benefit from more favorable tax rates due to their status as technology or foreign-invested firms.

3. Shift Toward Domestic Consumption

   • PE has played a significant role in promoting domestic consumption and sales.
   • Retailers backed by PE investors saw 47% sales growth, compared to 16% for listed retail companies.
   • Consumer goods companies backed by PE investors recorded 30% sales growth versus 18% for listed companies.

Key Information

• Timeframe: The survey covers the period from 2002 to 2008.
• Sample Size: 100 PE-backed companies were analyzed, representing over 50% of all PE investments in China during the 2002–2006 period.
• Investment Focus: PE investments in China's consumer goods and retail industry grew at a faster rate (77%) than overall PE investment (58%).
• PE's Role in Economic Development: PE firms are seen as a key driver in improving company performance, governance and contributing to macroeconomic and development goals.
• Methodology: The survey compared PE-backed companies with publicly listed companies and used a weighted average of growth rates to assess performance.
• Future Outlook: The survey suggests that PE could grow to represent 0.47% of GDP in China, similar to Europe and the U.S., indicating significant potential for further development.

Conclusion

The survey underscores the positive contributions of private equity to China's economy, particularly in job creation, innovation and supporting the shift toward domestic consumption. It also highlights the importance of PE in improving corporate governance and tax compliance. The European Union Chamber of Commerce in China and Bain & Company aim to continue this research to foster dialogue and awareness among industry players and regulators.