Localizing Global Finance: The Rise of Western-Style Private Equity in China

112 Pages·2015·1.297 MB·English

by  Justin Robertson (auth.)

Localizing Global Finance
DOI: 10.1057/9781137514028.0001
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DOI: 10.1057/9781137514028.0001
Localizing Global
Finance: The Rise of
Western-Style Private
Equity in China
Justin Robertson
DOI: 10.1057/9781137514028.0001
localizing global finance
Copyright © Justin Robertson, 2015.
Softcover reprint of the hardcover 1st edition 2015 978-1-137-51759-3
All rights reserved.
First published in 2015 by
PALGRAVE MACMILLAN®
in the United States—a division of St. Martin’s Press LLC,
175 Fift h Avenue, New York, NY 10010.
Where this book is distributed in the UK, Europe and the rest of the world,
this is by Palgrave Macmillan, a division of Macmillan Publishers Limited,
registered in England, company number 785998, of Houndmills,
Basingstoke, Hampshire RG21 6XS.
Palgrave Macmillan is the global academic imprint of the above companies
and has companies and representatives throughout the world.
Palgrave® and Macmillan® are registered trademarks in the United States,
the United Kingdom, Europe and other countries.
ISBN: 978-1-137-51402-8 PDF
ISBN: 978-1-349-50644-6
Library of Congress Cataloging-in-Publication Data is available from
the Library of Congress.
A catalogue record of the book is available from the British Library.
First edition: 2015
www.palgrave.com/pivot
DOI: 10.1057/9781137514028
Contents
List of Illustrations vi
1 Introduction 1
2 A Middle Ground between Global and
Local Levels of Analysis 9
3 Global Finance and Localization:
Four Possible Outcomes 16
4 Where to Study Domestic Actors and
New Finance 24
5 Replica Localization and Private Equity
in China 34
6 Elite Formations and Cases of Success
and Failure 54
7 Revisiting the Literature and the
Significance of the Findings 71
8 Conclusion 78
References 89
Index 101
DOI: 10.1057/9781137514028.0001 v
List of Illustrations
Figures
5.1 Percentage of country-focused funds raised
in USD and RMB 38
5.2 Percentage of country-specific funds raised
in RMB 39
5.3 Percentage of country-specific funds raised
in USD 41
5.4 Percentage of investments in USD and RMB 43
5.5 Percentage of investments in RMB 45
5.6 Percentage of investments in USD 46
5.7 Number of investments in USD and RMB 47
Tables
3.1 A range of possible outcomes of localization 18
5.1 Country-specific funds raised in USD
and RMB 38
5.2 Country-specific funds raised in RMB 40
5.3 Country-specific funds raised in USD 41
5.4 Investments in USD and RMB 44
5.5 Investments in RMB 45
5.6 Investments in USD 46
5.7 Numbers of investments in USD and RMB 48
6.1 Ten Chinese private equity firms with
senior princelings 56
vi DOI: 10.1057/9781137514028.0002
1
Introduction
Abstract: The introduction outlines the rise of “new”
finance in the global economy, the significance of private
equity funds in China and other emerging markets, and
two indicators to measure localized global finance (change
in Western business models and market share gained by
local and international private equity firms). Then, the
findings and the significance of this analysis are briefly
reviewed.
Robertson, Justin. Localizing Global Finance:
The Rise of Western-Style Private Equity in China.
New York: Palgrave Macmillan, 2015.
doi: 10.1057/9781137514028.0003.
DOI: 10.1057/9781137514028.0003 
 Localizing Global Finance
New financial forms deserve close attention from analysts of the global
economy. While scholars have cautioned against modeling larger proc-
esses of global social and economic change as part of “Americanization”
(Scholte 2005), finance is potentially different. “New” finance is a term
that captures the array of developments in the financial sector beyond
traditional bonds and equities. The vast majority of such new financial
processes that are spreading globally—including derivatives, hedge
funds, leverage, and mergers and acquisitions (M&A)—originated in
the American market and remain most advanced there. Consider the
case of hedge funds. Despite the changing face of hedge funds, where
Brazil, for example, has become the third largest center in the world, US
hedge fund managers still control 70%, or $1.8 trillion, of the total capital
managed by hedge funds globally (Prequin 2014: 25). As many aspects of
global finance have migrated to developing and emerging markets over
the past 15 years, East Asia has experienced a growing and substantial
engagement with “new” finance.1This monograph examines the extent to
which one prominent example of a new financial practice, private equity,
has been transplanted from its historical American base to a key Asian
market, China. “The question of whether PE [private equity] investors—
who are mostly large Anglo-Saxon funds—can simply transfer their
business model to other markets still remains unanswered,” according
to one study (Andres, Betzer and Gider 2012). The analytical framework
and findings presented here offer some clear answers to this question.
The growth of private equity in the world economy
Lying at the juncture of the real economy and the financial economy,
private equity funds draw upon capital and debt in financial markets
to acquire stakes in companies that are intended to be sold for profit
after a number of years.2 Private equity is now globally significant with
firms in this industry holding assets under management valued at $3.8
trillion in 2014, an increase from $716 million in 2000 (Prequin 2015:
5). US firms pioneered private equity and remain its dominant practi-
tioners.3 However, private equity has moved beyond the confines of the
US economy with Europe, in particular, rivaling the US as a market
for transactions. The American model of private equity is now better
referred to as Western private equity since Europe has largely followed
American practice in its private equity markets (Robertson 2009).
DOI: 10.1057/9781137514028.0003
Introduction 
Private equity is actively gathering pace in emerging markets. The share
of private equity financing raised for emerging markets as a proportion
of the global total has more than doubled when comparing 2011–2013 to
a three-year average of the early–mid-2000s.4 Private equity funds are
no longer only Anglo-Saxon enterprises as implied by Andres, Betzer,
and Gider above. More private equity firms are now headquartered in
Asia than in Europe and the fast growth of these firms is captured by one
major index illustrating that over 40% of firms on the list of the largest
Asian private equity firms are recent entrants (PE Asia 2012a).
Among emerging markets, China has been the primary story, and
the scale of its private equity market is striking. China’s private equity
industry has grown from only 10 firms in 1995 to more than 6,000.5
China has long surpassed Japan as the largest private equity market in
East Asia, and investors allocated 52% of all private equity capital in Asia
in the 2000–2013 period to China; Japan and India were a distant second
and third at 13% and 10%, respectively.6 The private equity industry has
received scant attention in the scholarly literature on China’s political
economy, and specifically its Chinese financial sector. Either this results
from the assumption that private equity and other so-called alternative
assets are peripheral in comparison to the driving forces of state-owned
banks and state-owned enterprises (SOEs). Or private equity is simply
an understudied process and one that scholars should examine more
closely. I contend that deals struck by private equity firms have become
economically and politically noteworthy in China, with private equity
representing between one-quarter and half of all M&A in the Chinese
economy in recent years.7 In 2014 alone, $31.9 billion of private equity
investments were conducted in both US dollars (USD) and renminbi
(RMB). As an originally American/Western financial form has appeared
in China, several questions concerning financial globalization and
localization can be raised. Is private equity in China really the same as
private equity found in North America and Europe? And what roles are
domestic and international actors playing as foreign models come into
contact with domestic processes and environments? These are the two
central questions explored in the monograph.
Though each particular financial class must be assessed in its own
right, the globalization of new finance has introduced elevated levels of
risk for workers, households, firms, and financial institutions.8 Unlike
hedge funds, which mostly engage in short-term trading, private equity
funds hold ownership and management positions in corporations. This
DOI: 10.1057/9781137514028.0003