China is Acquiring Stakes in Private Companies at a Record Rate

Matty-Sways

On heels of the trade war, economic slowdown and credit squeeze entrepreneurs feel the pressure, China brings the money.

China has made a reversal in which its state-owned enterprises have shrunk in importance and are responding by entering the private sector via investment. Private enterprises in China are in a weak position because they usually can not access cheap bank loans and other types of financing.

In October, Mr. Xi sought to reassure businesspeople, saying: “Any word or act to deny or weaken the private economy is wrong.”

In total, state-backed investors bought 47 stakes in private companies from January through June as compared with 52 deals all of last year. The 47 include purchases by state-run companies and investment vehicles of local governments, and stake sizes range from less than 1% to 100%.

This full year is likely to set a record, said Jing Yang, a Shanghai-based analyst at the credit ratings company. “The majority of these stake acquisitions need to be understood from the perspective of relieving financial stress,” she said.

Authorities are acting after failing to persuade banks to lend more to riskier private borrowers, said Andrew Collier, Hong Kong-based managing director at Orient Capital Research. “Beijing is stepping in because they are worried about a sharp rise in unemployment,” he said.

China’s private sector remains pivotal to the health of the world’s second-largest economy, providing close to 60% of all urban jobs in 2017, up from 35.6% in 2010, according to Oxford Economics. A China business confidence index compiled by the Cheung Kong Graduate School of Business fell to 47.2 in August, a reading below 50 indicates respondents expect conditions to worsen.

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