Capital gains

Actis, which has 15 staff in its Beijing office, is looking to invest in Chinese businesses in niche sectors such as companies which distribute insurance and others that offer wealth management services.

"We are particularly interested in those businesses which target their services at the affluent middle class sector rather than high net worth individuals," he says.

Luckock, who is constantly traveling and had visited Brazil, India and China i

The private equity market is held back to some extent by poor auditing standards in a number of Chinese SMEs.

The companies themselves sometimes are keen to bring in private equity partners so they can get their accounting standards in order, particularly if they are seeking an IPO in the near future.

Zhang at Apax says this is often a vital role for a private equity company to play.

"Putting in quality standards and improving the compliance level as well as stronger governance is very helpful for a company to further develop," he says.

Wang at Liuhe Private Equity says one of the hidden bonuses of the economy slowing down as a result of the government's credit-tightening measures is the ability to do more thorough due diligence.

"Several years ago even a mediocre company was able to get money. In a period of uncertainty we are often no longer in a race with other companies and we can spend more time getting to understand a company and do lengthy due diligence before making an investment," he says.

Many experts believe venture capital and private equity are playing a significant role in the development of China's private sector.

They are not only providing risk capital but also expertise in helping companies develop their businesses, whether they want to float on the stock market, build a brand or to make acquisitions overseas.

"Private equity companies bring with them often a knowledge of the sector the company is involved in and they also have experience of international markets and also a wide range of contacts," says Zhang at Apax.

"A lot of Chinese companies are often nervous about going abroad because they lack contacts."