The Social and Economic Impact of Private Equity in China 2009 Survey

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© European Union Chamber of Commerce in China and Bain & Company, Inc. All rights reserved www.europeanchamber.com.cn www.bain.com FOREWORD PRIVATE EQUITY: WHAT’S IN IT FOR CHINA ? In just 10 years, the venture capital and private equity (PE) industry in China has become a driving force for economic growth, job creation, innovation and entrepreneurial success. China has emerged as one of the leading destination for PE capital, and though slowed by the business-cycle downturn, this trend is continuing through the current turbulence.

This spectacular growth, the entrepreneurial achievements it created and the stellar initial public offerings (IPOs) it generated on both Foreign and Chinese stock markets have been well received. Private equity enjoys a positive image in China with stakeholders: government officials, financial institutions, the general public and, particularly, with entrepreneurs and management teams.

But private equity’s favorable image in China might in some cases be challenged, as the ongoing financial turmoil could trigger poor investment returns, questionable management behavior and failed deals.

This survey is the contribution of the European Union Chamber of Commerce in China, in partnership with Bain & Company, to evaluate private equity’s role in China at this important juncture in its development. It applies a unique social and economic perspective to an industry often regarded as pure financial engineering. In short, it mobilizes rigorous data to answer the question: “Private equity: What’s in it for China?”

Transparency creates trust. It is our goal to strengthen that trust by explaining how this important industry works and describing its contributions to China and its people.

This survey, the first of its kind to be conducted in China, shows that PE, both foreign structured and domestic, has been a driving force in improving companies’ financial performance, social outcomes and company governance.

We hope all industry participants – fund managers, fund of funds sponsors, government bodies, professional associations, advisors – will use the data and findings of this survey extensively. The European Chamber and Bain look forward to participating in future con- ferences and workshops with industry stakeholders.

I would like to express my thanks to the European Chamber team that contributed to the survey, to its president Joerg Wuttke, for his continuous support; to my vice-chairs, in particular Roslina Chai; and to Bain & Company and its partners, Michael Thorneman and Weiwen Han, for producing the underlying analysis upon which this report is based.

Andre Loesekrug-Pietri Chair, Private Equity and Strategic M&A Working Group European Union Chamber of Commerce in China December 2009

In partnership with TABLE OF CONTENTS

Executive summary 1

Representative panel 4

Social impact of private equity in China 6 • Developing people: More jobs, better pay and higher educational attainment 6 • Increasing innovation: More R&D spending 7 • Contributing to China’s “Go West” policies: Private equity moves inland 8

Economic impact of private equity in China 10 • Boosting growth and profitability: PE creates better-run companies 10 • Strengthening corporate governance and increasing tax payments 11 • Changing China’s business model: PE helps lead the shift toward domestic consumption 12

Background information 14 • Importance of private equity in China 14 • Private equity glossary 16 • Methodology 17 • Sources & Notes 19 • Acknowledgements and contact information 21 EXECUTIVE SUMMARY

This first survey on the social and economic impact of private equity in China demonstrates that PE firms provide a strong source of support in helping Chinese companies to grow and contribute to China’s macroeconomic and development goals. PE firms transfer management know-how to businesses in their portfolios, build globally competitive companies, improve corporate governance, develop an innovative private sector, support inland development and foster domestic consumption. The purpose of the survey was to document the above mentioned effects based on facts and figures.

Although private equity is a relatively new phenomenon in China, it is developing rapidly, as Private Equity in China 2009 China has become one of the top destinations for PE investment. As with many fast-growing new industries, the societal changes set in motion by these capital flows raise questions about whether PE enriches Chinese social and economic development as a whole. 1 It is in this context that the Private Equity and Strategic M&A Working Group of the European Union Chamber of Commerce in China and its survey partner, Bain & Company, set out to examine PE’s social and economic impact in China. This report presents data on key social indicators, including job creation, spending on research and development and the distribution of investment to inland provinces. It evaluates key measures of economic performance, including revenue and profit growth, the stimulation of greater domestic consumption and tax contributions. The study also aims to be a major source of quantitative information about private equity in China and to contribute to a constructive debate about its current role and future development.

Covering the period from 2002 to 2008, the survey included a highly representative panel of companies, representing more than 50 percent of all private equity investments through 2006. We excluded deals completed after 2006 in order to be able to track post-investment European Chamber performance for a period of at least two years. Supplemented by 17 in-depth interviews with PE-backed company executives, this report reveals private equity’s social and economic contribution through their portfolio companies.

In partnership with European Chamber 2 Private Equity in China 2009 to ininlandprovinces. companies headquartered private equity is flowing across all provinces. The survey found that Not confined to the coastal regions that have attracted disproportionate investment capital, Finally, PEisastrong contributor to thegovernment’s “Go West” policies. goal ofestablishingChinaasaninnovative society. policy public the further firms PE chain, value the climb to companies Chinese helping By spending. R&D of productivity the increase and practices best disseminate frequently also awarenesstorsraise innovation’sof invest,they which companiesin they the at importance more was than companies PE-backed at spending R&D revenue, of percentage a as Measured goalsforare PE-backed important firms. development and research on spending efficient and innovation Second, Private quality. job my toward greater domesticconsumption andmore socialstability. raising also are China’secono move to helping is companies compensation and hiring on equity’squalitative impact PE-backed higher, or degree with graduates associate for peers their than employment of rate growth higher percent 50 a PE-backed by companies listed the of those companies. outperformed companies listed publicly at PE-backed at rates growth percent salary gross wages. The higher 8 also significantly pay companies just with compared period survey companies equity-financed private at employment Total salaries. First, PE-backed companies created more jobs and paid higher wages and •Private equity’s onChinaisnotableinthree areas: principal SOCIALimpact two-and-a-half times two-and-a-half The SocialandEconomicImpactofPrivateEquityinChina2009Survey that of their publicly listed counterparts. Not only do PE inves- PE do only Not counterparts. listed publicly their of that overthepercent 16 by increased sevenpercentagepoints.With 42 percent was directed - • Private equity’s ECONOMIC impact on China stands out in three categories:

First, PE-backed companies in China booked higher revenues and profits than their publicly listed counterparts. PE-backed companies achieved a 3 percent higher revenue growth. They also posted a noteworthy 39 percent average increase in profits compounded annually, 14 percentage points higher compared with a 25 percent average increase reported by their publicly listed competitors. These results underscore the efficiency gains achieved within those companies thanks to the involvement of the private equity fund managers. Indeed, beyond the capital they invest, PE fund managers often engage actively with the managers of their portfolio companies, introducing them to new management practices, better financial

controls, improved brand development and enhanced corporate governance, among other Private Equity in China 2009 disciplines, to improve performance.

Second, PE-backed companies generate higher tax payments than their 3 publicly listed peers. Reflecting their stronger financial performance since 2002, PE-backed companies yielded tax payments that grew at a 28 percent rate compounded annually, 10 percentage points higher than their benchmark peers. Due to their status as technology companies or as businesses with foreign investors, many PE-backed companies enjoy more favorable tax rates than their publicly listed counterparts. Thus, their higher tax payments suggest that PE shareholders bring improved corporate governance with respect to the disclosure of taxable income.

Finally, PE-financed firms support the expansion of China’s domestic consumer goods and retail industry. Since 2002, PE investments in consumer goods and retail companies have grown at a 77

percent annual rate compounded, making this sector one of the largest magnets for PE European Chamber funds in China. Retailers backed by PE investors booked sales growth of 47 percent compared with just 16 percent for publicly listed retail companies.

We hope that the findings in this survey will be helpful to all stakeholders of the private equity community as well as to a wider audience. The European Chamber plans to update the findings on an annual basis to foster a constructive dialogue among industry players, invested companies and regulatory authorities, and to spread awareness of how private equity is helping to sustain China’s development objectives.

In partnership with European Chamber 4 Private Equity in China 2009 REPRESENTATIVE PANEL deals in those two sectors completed during the survey period risked biasingtheresults. risked period completeddeals inthosetwo sectors thesurvey during China’s in and large of very number small a sample: the in included institutions were not financial companies biggest estate real in investments PE 2). chart (see geographies and five-year 1). companyindustries,sizes of representrangebroadcompaniesthe These a chart (see period during completed deals equity private of value total the of percent 50 than more for accounting companies, PE-backed 100 on obtained data on based is analysis The ofpost-investment2006 to tracking permit for ofat aperiod leasttwo years. performance after completed deals excluded It 2008. to 2002 from period the during performance their financing from foreign or Chinese private equity funds between 2002 and 2006, and tracked investment over underinvestigation. theperiod equityprivate total percentof 50 than moreaccounting for To build a representative view, the survey tracked companies The survey examined mainland Chinese companies that received at least US least at received that companies Chinese mainland examined survey The Chart 1 – D e a l The SocialandEconomicImpactofPrivateEquityinChina2009Survey v 100 a l u e 2 4 6 8 % V 0 0 0 0 0 ( alue of $ B ) T p o rivate e t a l i 50 20 n > < ve 1 - - 1 2 100 0 50 4 0 s 0 M q t M M m M uity de e n t s a l s

c om plete S d u r d ve 50 20-50 uring > 100 - 7.5 y 100 s a M M M m

2002-200 p l e 6 $ 20 million in million 20 Chart 2 – Survey participant profile

100 companies involved in deals > $20M, 2002-2006 100 Others 100 100 100% Healthcare 10,000+ Financial services Retail 5,000-9,999 80 Consumer goods Inland 1,000- 60 4,999 Technology, media and telecom Private Equity in China 2009 40 500-999

Coastal 20 Industrial goods & services 5 0-499

0 Industry Revenue Headquarters location (M RMB)

Comparisons with publicly listed companies

The survey compares the performance of the private equity-backed companies to that of 2,424 public Chinese companies listed on domestic and foreign exchanges such as Shanghai, Shenzhen, Hong Kong, European and American stock exchanges. The analysis covers a range

of social and economic indicators, including job creation, wages and salaries, tax payments, European Chamber employees’ educational attainment, revenue, profits and other metrics.

In partnership with European Chamber 6 Private Equity in China 2009 Superior performance in these three areas is one characteristic of a high-performing high-performing a isespeciallyprevalenton quality at theexecutive level. of characteristic one is on a fast growth interviews, thatwe this focusBased on in-depth observed track. areas company three these in performance Superior 3). chart (see workforces better-educated hiring and compensation gross increasing jobs, full-time more creating by impact large disproportionately a have companies PE-backed cational attainment edu- higher and pay better jobs, More people: Developing SOCIAL IMPACT 1 Chart 3 – G r o w The SocialandEconomicImpactofPrivateEquityinChina2009Survey t h 30 r a t 1 2 H % e 0 0 0 uman capital metricscomparison ( % ) em L Nu i 8 f s u t % e m pl l d l - b o t i e y m b ee r a 16 P c e o E k s % f e d G r 20 o s pa % s s i d a l 2 a 7 r % y d em e % g a r 2 pl ee ss o % o f o s y f c u e o i l a e r l - t s 3 t h e i % w m i ' g s i h e t h e r SOCIAL IMPACT 2

Increasing innovation: More R&D spending

Private equity funds provided more resources for research and development and helped to ensure their portfolio companies directed the R&D spending to clearly identified goals. The survey analysis revealed that PE-backed companies spend 1.8 percent of revenues on R&D, more than two-and-a-half times the R&D investments made by publicly listed companies in the survey (see chart 4). PE investors strengthen innovation in two ways: first, by setting clear innovation priorities for their portfolio companies; second, by introducing best practices to increase the productivity of their R&D investments. Private Equity in China 2009 A private equity fund manager

Chart 4 – Overall research & development spending as a percentage of revenue

R&D spending as % of revenue (%)

2.0% 1.8%

1.5

1.0

0.7% European Chamber 0.5

0.0 Listed PE backed

In partnership with European Chamber 8 Private Equity in China 2009 and thosebasedinmore affluent coastal provinces. provinces inland in headquartered companies to proportion equal nearly in flowed have investments PE 2002, Since 5). chart (see provincesChina’s inland on imprint their also leaving are funds equity private coast, the along investments sizable make they Although moves inland equity Private policies: West” China’s“Go to Contributing SOCIAL IMPACT 3 Chart 5 – P E i Inland Coastal n d No investment >500M USD 0-100M 100-500M USD The SocialandEconomicImpactofPrivateEquityinChina2009Survey ves u ri ng survey p tm cities P en cities

E investment by geogra USD t e ri od Xinj i a ng T ibe t Qin g ha Yun i p h S n ichu a y for n a G n a Ni ns ng d Inner Mongol Inner Chongq Guizhou u eals xia S Guangxi h aanxi i

ng S >US h an Hai Hu He i x a Hu n b n Gu i He a ei a B $ n n n angd b eiji a 20M e n n Jian i Hong Ko Hong Sh ng An on T a i gx h a n Fu g ui nj do Li in 2002-200 i Jiangs j in i aon ng a Zhejian n n g i ng u S T H h a J ng eilo a i w il g n in a g n h a j i i a n g 6 The trend toward inland investments accelerated sharply in recent years, slowing somewhat in 2008, when inland companies attracted 42 percent of the US$5.6 billion that PE investors deployed in deals over US$20 million (see chart 6).

Chart 6 – PE investment inland vs. costal

Private Equity deal value ($M) Annual Growth 127 936 1,412 2,340 4,472 9,107 5,596 100% 02'-08' Private Equity in China 2009

80 Coastal 90% 60 9

20 Inland 86%

0 2002 2003 2004 2005 2006 2007 2008

Inland as % of total investment 45% 11% 56% 38% 55% 64% 42% European Chamber

In partnership with 10 European Chamber Private Equity in China 2009 information technology andinventories, circle. creating avirtuous through reduced employment or lower salaries but through efficient management of costs, transferknow-how.managementthe of from profit achievedThishigher growth not generally is benefit companies PE-backed that is growth profit of rate steeper the in factor One group ofcompanies reached RMB71billion. same the of profits post-funding, years Two billion. 36 RMB of profits net had companies the for publicly listed companies inthesurvey. theyear In that fundingwas received,percent thesurveyed 25 versus percent 39 of rate growth earnings average an posted They 7). chart (see companies benchmark the profit growth than robustmore substantially booked firms PE-backed taxes, and R&D compensation, employee for spending increasing Despite group generated RMB867billioninrevenue. billion. 535 RMB Tworevenuetotalof postedcompanies later, yearssurveyed the same the investments,receivedfirst PE they year the In peers.listed publicly their than higher points Companies with PE shareholders turned in annual revenue growth that was three percentage better-run creates companies PE profitability: and growth Boosting ECONOMIC IMPACT 1 Chart 7 – G r o w t The SocialandEconomicImpactofPrivateEquityinChina2009Survey h 50 r a t 1 2 3 4 % e 0 0 0 0 0 R ( % evenue and profit growthcomparison ) 24 % Re v e nu 27 e % L 25 i s t % e d P r of i b t a 39 PE c k % e d ECONOMIC IMPACT 2

Strengthening corporate governance and increasing tax payments

Interviews with executives at companies that accepted private equity investments revealed that they valued the role their PE partners played in improving corporate governance. Major impacts of corporate governance are improvement of account transparency and tax disclosure. The data show that PE-backed companies yield higher tax payments to the government, and that these have increased at a rate faster than taxes paid of publicly listed businesses since 2002.

During the period covered by the study, total tax payments of PE-backed companies increased at a 28 percent compound annual rate, 10 percentage points higher than those of their publicly Private Equity in China 2009 listed peers (see chart 8). Due to their status as technology companies or as businesses with foreign investors, many PE-backed companies often enjoy more favorable tax rates than their publicly listed counterparts. Thus, their higher tax payments suggest that PE shareholders 11 bring improved corporate governance with respect to disclosure of taxable income. Finally, it is important to note that the tax payments made by listed companies come under particularly close scrutiny, making the results of this benchmark comparison noteworthy.

Chart 8 – Tax payment comparison

Growth rate (%)

30% 28% European Chamber 20 18%

Total taxes paid

0 Listed PE backed

In partnership with 12 European Chamber Private Equity in China 2009 deals in2002,consumer andretail investments withthemin2008. reached parity strong IT and media sectors. Accounting for less than of one-third the value of IT and media traditionally the in made those rival now businesses retail and investmentsconsumer PE in the consumer goodsandretail grew industries by 9). 77 percent (seechart in investment 2002, since percent 58 by increased China in investment PE While industry. retail and goods China’sconsumer in interest strong showing are investors equity Private shift toward domesticconsumption the lead helps PE model: business China’s Changing ECONOMIC IMPACT 3 Dea Chart 9 – l v a 100 The SocialandEconomicImpactofPrivateEquityinChina2009Survey l u e 4 6 8 2 % gr 0 0 0 0 0 2 o 002-2008 total deal value w t h r a Mainland China overall China Mainland t e ( 0 2 - 08 58 , % % ) T o t a l d g e r a owth rate l v a l u R e e g t o a o i l d a s n 77 i d nd c % u o s ns t r um i e s e r Private equity’s increasing presence in the consumer goods and retail sector is having a positive impact on overall domestic consumption and sales. Retailers backed by PE investors booked sales growth of 47 percent compared with just 16 percent for publicly listed retail companies. While consumer goods companies backed by PE investors booked sales growth of 30 percent compare with 18 percent for publicly listed peers (see chart 10).

Chart 10 – Revenue growth comparison

Revenue growth relative to listed companies Private Equity in China 2009

100%

13 80

60 47

40 30 PE 20 18 16 backed

Listed 0 Consumer Retail European Chamber

In partnership with 14 European Chamber Private Equity in China 2009 capital to fill the breach: More than 80 percent of private equity investments were in the form 11). ofcapitalto finance expansion (seechart in were investments equity private of percent 80 than More breach: the fill to capital growth for investors equity private to turn to entrepreneurs led have enterprises new and companies midsize and smaller for capital expansion toaccess Limitedmode. high-growth in been China’shas economyof much sense, a in that, to is reason common main The capital. more venture characteristics shares China in industry equity private the contrast, By Focused ongrowth capital investorsequity fullownership ofthetarget companies. taking States and Europe, PE deals in recent years have been concentrated in buyouts, with private United the in especially and context, global the In class. asset mature a into developed has buy stakes in operating companies. Through boom-and-bust cycles over several decades, PE typically funds equity investors,private institutional from primarily raised capital Investing ofprivate inChinaImportance equity BACKGROUND INFORMATION Ch art 100 D e The SocialandEconomicImpactofPrivateEquityinChina2009Survey a

2 4 6 8 % 11 l 0 0 0 0 0 v a

l – u e 2002-2008 ( U S $ B ) M a i n tota l an 4 d 3 l deal C h i n a valu e byfinancingstagein China s B T P S P ( r M e t u r I u t a P e s ar r B y g t E - n o ru O I e t ar P - u fi / / u c O c t M n o t s p o / an ur un B /ear n E I c i c / n d x e i L n / p g p B l a g y t O n ) s i o n BACKGROUND INFORMATION

China is Asia’s top investment destination for private equity China has become the top destination for private equity investment in Asia over the past several years. From 2000 through the peak of global economic expansion in 2007, PE deals in China grew at a compound annual rate of 45 percent. Yet, even as new investments slowed in 2008 due to the financial crisis, PE activity in China remained strong relative to other Asian markets. This trend continued through the first half of 2009, as deal volume topped$ 7.2 billion, nearly matching the total for all of 2008. No other country is recovering as quickly. China is now on par with the region’s mature economies such as Japan and Australia/New Zealand as a destination for new investments.

Other indicators point to continued significant growth for PE over the medium term. Today, PE investments in mainland China already represent 0.17 percent of GDP. Significant growth

can be anticipated if they were to increase to the European level of 0.47 percent of GDP or Private Equity in China 2009 the 1.3 percent level in the U.S (see chart 12).

15 Chart 12 – PE investment as a percentage of total GDP in 2008

PE investment as % of total GDP 1.5% 1.30

1.0

0.5 0.47

0.17

0.0 Mainland China US Europe European Chamber GDP $4,320B $14,280B €11,523B PE investment $7.3B $186B €54B

Evolving trends that could impact China’s private equity industry include, among other things: the introduction of RMB-denominated funds; the closer alignment of domestic regulations with international principles; collaboration with global funds to diversify portfolios; the introduction of industry best practices for limited partners and general partners operating in China; and higher levels of participation by domestic institutional investors and funds of funds investing in private equity.

In partnership with 16 European Chamber Private Equity in China 2009 • • • • • • • buyouts, leveraged include equity venture private capital, growth capital, distressed investments. in strategies investment common most The Private glossary equity a fundoffundsto and minimizecosts theeffort related to managing theirportfolio. in investors relativelyinstitutional and participate small individuals worth net nies.High compa- insurance or funds pension like investors institutional large are investors own Funds: of Fund andispersonallyresponsible forthe private itsliabilities. partnership equity (GP): Partner General of theiroriginal investment inthepartnership. but equity partnership takes no in part managing it. LPs are liable only up to the amount Limited Partner (LP): and debt of combination a to companies undergoing operational orfinancialchallenges. typically equity financing” “rescue provide also may Investors corporaterestructuring.company’sa theafter equitycontrolof anticipationtaking inof investmentsto intofinancially troubled companies. Investors may acquire debt securities the Distressed investments: of Distressed, or special, situations are a broad referringcategory control ceding without acquisition major a business. finance or markets new enter inposition a relatively mature company that is looking to expand or restructure Growth capital: operations, and itusuallyinvolves stakeinthebusiness. acquiring aminority new technology, new marketing concepts and new products that have yet to be proven, of application the in found often most is investingVenture business. a of expansion or Venture capital: operating healthy generate and mature cash flows. typically are transactions these in involved companies target The debt. and equity of combination a using typically shareholders, to acquire a majority stake in a company, business unit or business assets from the current Leveraged buyout: Also called LBO or buyout, this is a strategy financial sponsors employ The SocialandEconomicImpactofPrivateEquityinChina2009Survey This is an equity investment made most often to acquire a minority minority a acquire to often most made investment equity an is This It is a pool of capital that invests in several private equity funds. Its Its funds. equity private several in invests that capital of pool a is It This is an equity investment made to finance the launch, early development A LP is an investor in a fund. It has a share of ownership in a private A GP is a fund manager. He takes part in the daily operations of operations daily the in part takes manager.He fund a is GP A

Methodology

Benchmark selection In the Survey, Bain compared the 100 companies that received private equity investments with 2,424 publicly listed companies having major operations in China. Of these, 1,523 companies listed on the Shanghai and Shenzhen stock exchanges. The study also included 901 Chinese-affiliated enterprises listed on other major exchanges around the world, including exchanges in Hong Kong, Korea, Singapore, Europe and the United States. To qualify for inclusion, a company had to be headquartered in China, have China as its primary geographic location or have the words “China” or “Chinese” as part of its name or in its business description (see chart 13). Private Equity in China 2009

Chart 13 – Listed companies included in the analysis as benchmark

17 Number of listed companies

Financial Services 1,523 589 115 197 100% Total = 2,424 Retail Healthcare 80 Consumer goods

Technology, media & 60 telecom

Industrial goods & services 20

0 A shares H shares US exchanges European Chamber Others

To better evaluate the relative performance of companies that had received private equity investments, Bain developed a company databases to create benchmarks. This database included publicly listed companies having major operations in China from six industries—retail; consumer goods; industrial goods & services; healthcare; financial services; and technology, media & telecommunications. In order to perform industry-level analysis, each listed company was assigned to one of the six industries.

In partnership with 18 European Chamber Private Equity in China 2009 to come upwithitsoverall for examined. eachmetric performance computed was period relevant the over company each of performance relative the averageof weighted the periods, time different from results the aggregate to Finally, 2004. through was compared against that groupof the benchmark for the identical two-year period, 2002 2002 in capital PE of infusion initial receivedtheir that companies equity-backed private of period two-year the for from thebenchmarks most beginning both recent for investment and bycompany private equityequity-backed investors. private the Thus, the performance relative to the benchmark groups, Bain first calculated the growth in the survey relevant metricsthe for in companies equity-backed private 100 the of performance the determineTo Relative performance The SocialandEconomicImpactofPrivateEquityinChina2009Survey Sources & Notes

Chart 1: Source: AVCJ; Bain analysis

Chart 2: Source: AVCJ; Bain analysis

Chart 3: Source: AVCJ; Capital IQ; China statistics yearbooks; company annual reports; Bain analysis Note: Analysis based on weighted average compound annual growth rate or CAGR (except for percent full-time employees with associate’s degree or higher, which used weighted Private Equity in China 2009 average annual rate) of 100 companies involved in deals above US$20M during 2002–2006; listed companies benchmark use 2002–2008 weighted average

Chart 4: 19 Source: AVCJ; Capital IQ; China statistics yearbooks; company annual reports; Bain analysis

Chart 5: Source: AVCJ; literature search; Bain analysis Note: Analysis based on companies receiving private equity investment above US$20M during 2002–2006; Real estates deals are excluded; financial deals excluded are megadeals of Industrial Bank, Bank of China, China Construction Bank and Bank of Communications

Chart 6: Source: AVCJ; Bain analysis Note: Real estates deals are excluded; financial deals excluded are mega-deals of Industrial Bank, Bank of China, China Construction Bank and Bank of Communications; all other deals

above US$20M during 2002–2008 included European Chamber

Chart 7: Source: AVCJ; Capital IQ; China statistics yearbooks; company annual reports; Bain analysis

Chart 8: Source: AVCJ; Capital IQ; China statistics yearbooks; company annual reports; Bain analysis

In partnership with 20 European Chamber Private Equity in China 2009 Source: Private Glossary, Equity Foster Center for Private Equity Source: http://biztaxlaw.about.com/od/glossaryl/g/limitedpartner.htm Private Glossary: Equity Source: Bainanalysis 13: Chart Source: AVCJ, Euromonitor, Pitchbook, European PE& VC Association, Bainanalysis 12: Chart estate real excluding 2008, to 2002 deals from China mainland in deals including Data Note: Source: AVCJ; Bainanalysis 11: Chart Source: AVCJ; Capital Bainanalysis IQ;Chinastatistics yearbooks; annualreports; 10: Chart Source: AVCJ; Bainanalysis 9: Chart The SocialandEconomicImpactofPrivateEquityinChina2009Survey Acknowledgement to contributors & contact information

Our special thanks go to: First and foremost, to private equity fund managers and management teams who • answered our questionnaire and in-depth interviews

To all people who contributed, from Bain, the European Chamber or outside organizations, • and in particular: Ms. Xuan Wang (project leader), Kiki Yang, Stephen Kao, Weining Wang, Serge Janssens, Gregory van Bellinghen, Tony Robinson, Susan Xu, Joanne Wood, Lucas Leger, Martin Ready, Landy Yang, Alan Weathley, Adam Dunnett, Dirk Moens, Alex Bell, Yann Cohen, Lyn Kok, Kathleen Ng, Dominique de Boisseson, Grace Yao and many others. Private Equity in China 2009 About the European Union Chamber of Commerce in China The European Union Chamber of Commerce in China was originally founded by 51 member companies based in China on October 19, 2000. The rationale for the establishment of the 21 Chamber was based on the need of the European Union and local European businesses to find a common voice for the various business sectors. Nine years after its foundation, the European Chamber now has a total of more than 1400 members in seven chapters: Beijing, Chengdu, Nanjing, Pearl River Delta (Guangzhou and Shenzhen), Shanghai, Shenyang and Tianjin. The Chamber is recognized by the European Commission and the Chinese authorities as the official voice of European business in China.

The European Chamber is an independent member-driven, non-profit, fee-based organization with a core structure of 28 Working groups and 6 Forums representing European business in China. The Chamber is directed by a President and Executive Committee elected each year by and from its members.

About the European Chamber Private Equity and Strategic M&A Working Group Established in 2008, the working group is established at a national level and is a platform European Chamber of exchange and expertise on PE and M&A related issues for its members, as well as a communication platform with the Chinese and European governmental authorities on topics of long-term benefit for the European investment community in China. The objective is to achieve a level playing field among all market participants and brings an active contribution to the development of the industry.

Its deliverables include the annual Position Paper on PE and strategic M&A, regular meetings and workshops in several Chinese cities (with professional associations, fund managers, governmental entities), as well as the annual survey on the Social and Economic impact of PE in China.

In partnership with 22 European Chamber Private Equity in China 2009 Email: [email protected] Fax: +86(10)64622067 Tel: +86(10)64622066 PR China 100125 Beijing Chaoyang District No. 50Liangmaqiao Road LufthansaBeijing Center C412 Office Website: www.europeanchamber.com.cn European UnionChamberofCommerce inChina onPEandM&Amatters.also includesalladvisersworking from or funds of European origin, Europe as well as heads to of M&A for related large corporations. managers The working group fund VC and PE foremost and first include Members The SocialandEconomicImpactofPrivateEquityinChina2009Survey

About Bain & Company

Bain & Company, a leading global business consulting firm, serves clients on issues of strategy, operations, technology, organization and mergers and acquisitions. The firm was founded in 1973 on the principle that Bain consultants must measure their success by their clients’ financial results. Bain clients have outperformed the stock market 4 to 1. Bain & Company is the leading management consulting firm advising private equity funds (three times larger than the next largest firm). For more information visit: www.bain.com. Private Equity in China 2009

Bain & Company 23 Website: www.bain.com Bain & Company China, Inc. Unit 2407-09, Office Tower 2 China Central Place No. 79, Jianguo Road Chaoyang District Beijing 100025 PR China Tel: +86 (10) 6533 1199 Fax: +86(10) 6598 9090

Bain & Company (Hong Kong) 30/F, One International Finance Centre One Harbour View Street Central Hong Kong

Tel: +852 2978 8800 European Chamber Fax: +852 2978 8801

Bain & Company China, Inc. 31F, 2 Plaza 66, No. 1366 West Nanjing Road Jing’An District Shanghai 200040 PR China Tel: +86 (21) 2211 5588 Fax: +86(21) 2211 5500 Email: Tong.Wu@bain.com

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