See Capital Run

The power money is moving east - Carlyle, Warburg...Blackstone. It doesn't take more than a quick google search to see who is behind these juggernauts.

China's Homegrown Private Equity
New tax laws and a little help from the government in Beijing are giving domestic private equity firms a big boost against foreign players

Hong Kong - The barbarians, it seems, have arrived at the Great Wall—and now they're coming from both sides. In China the top players in private equity—the proverbial barbarians at the gate—have been Carlyle, TPG, Warburg Pincus, and other foreigners. But lately those global heavyweights have had to contend with increasing numbers of homegrown rivals. "Local competition is our biggest challenge," says Wayne Tsou, head of Carlyle Asia Growth Partners.

Blackstone to Team With Shanghai on First Domestic Chinese Fund

By Cathy Chan

Aug. 15 (Bloomberg) -- Blackstone Group LP, the world’s biggest buyout company, agreed to set up a 5 billion yuan ($731 million) private-equity fund with Shanghai, the first venture between a global buyout firm and the Chinese government.

The Blackstone Zhonghua Development Investment Fund will be created with the newly formed government of Pudong New Area, Blackstone said in a statement today. The fund will target investments in Shanghai and the neighboring areas. China and Blackstone didn’t disclose the structure of the fund. Blackstone spokesman Peter Rose declined to comment beyond the statement.

Blackstone will be the first global private-equity firm to secure investment from a tier-one city government in China. The agreement signifies China’s endorsement of private equity to bolster corporate governance and profit, said Vincent Chan, co- founder of China-focused fund Spring Capital Asia Ltd. TPG, Carlyle Group and KKR & Co. haven’t established domestic funds.

“The Blackstone deal represents China’s willingness to use private equity to shake up the economy,” Chan said. “China’s future economy will be driven by its private enterprises.” Many first-time chief executive officers “will need help on matters from boosting corporate governance to acquisitions.”

Playing Catch-Up

Shanghai, home to the nation’s largest stock exchange, is playing catch-up with Tianjin, Beijing and Hong Kong to become a private-equity hub by proposing tax breaks to attract buyout firms.

The northern city of Tianjin became the first to allow buyout firms to set up in 2006. The Bohai Industrial Investment Fund Management Co., whose shareholders include Bank of China Group Investment Ltd., China Life Insurance Co. and China’s Social Security Fund, was the first domestic yuan-denominated private-equity fund set up in the nation.

Fang Fenglei, a Chinese partner at Goldman Sachs Group Inc., also is planning to raise a domestic private-equity fund for his Beijing-based Hopu Investment Management Co., after raising $2.5 billion from overseas investors.

Shanghai imposes tax rates of up to 35 percent on private- equity and venture-capital firms under limited partnership structures, and charges 20 percent on capital gains earned by non-executive partners, according to rules announced in August last year. In Hong Kong, capital gains are exempt from taxation and the corporate tax rate was cut to 16.5 percent.