Tariff concerns, exit outlook dampen mainland China private equity fundraising

Fundraising by mainland China-focused private equity funds appears on track for a fourth consecutive annual decline as trade tensions between the US and China prompted investor caution.

Between Jan. 1 and June 30, nine mainland China-focused private equity and venture capital funds raised $350 million, equivalent to just 1.4% of the $24.88 billion fundraising total of full year 2024, according to Preqin Pro data. The steep drop in mainland China-focused private equity fundraising stood in contrast with accelerating global private equity fundraising in the first half of 2025.

While officials from China and the US agreed to extend a pause in their trade dispute in late July after failing to reach a deal at a meeting in Stockholm, there is more weighing on the minds of private equity investors.

Slowing growth in the Chinese economy and a brighter outlook for investment in neighboring countries, including Japan, are redirecting flows of private capital in Asia-Pacific, said Gavin Geminder, global private equity sector leader for KPMG.

"There's easier money and more money to be made right now outside of China than there is by trying to find the right investments in China," Geminder said.

Domestic deals dominate

China's private equity deal landscape has shifted to almost entirely domestic capital, as geopolitical concerns and tariff policy restrain foreign investment on the mainland.

For the year through July 31, mainland China logged 1,686 private equity investments and rounds of funding, and 1,664 of the transactions involved mainland China-based firms, according to S&P Global Market Intelligence data. Foreign private equity firms involved in the most deals were those from the US, with 49 transactions, and Singapore, with 29. UK-based private equity firms participated in 13 transactions.

The top 10 private equity transactions from January to July were almost exclusively from domestic firms, according to Market Intelligence data. The largest was Boyu Capital Group Management Ltd.'s proposed acquisition of up to a 45% stake in Beijing Hualian (SKP) Department Store Co. Ltd., with the transaction value estimated at $2 billion.

Private equity investors seeking targets in mainland China are focusing on businesses tapping the domestic market, said Oliver Nip, a partner in Ropes & Gray's private equity transactions group.

"Appetite for investment can be seen in a number of sectors, in particular the consumer and healthcare [and] life sciences space, with domestic consumption as the core thesis," Nip said.

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Private equity- and venture capital-backed M&A transactions in mainland China totaled $2.90 billion through June 30, on track to surpass the full-year 2024 total of $4.90 billion, according to Market Intelligence data. The median private equity deal value has remained stable over the trailing four years at approximately $14 million.

Funding rounds in mainland China are trending for a year-over-year decline. Startups in the market raised $12.20 billion from private equity and venture capital firms across 1,396 rounds of funding in the first half of the year and would have to more than triple that amount in the second half to match the $39.10 billion full-year 2024 total, Market Intelligence data shows.

Exits trend higher

A relatively active exit pipeline in the first half of 2025 is brightening the outlook for mainland China-focused private equity investors.

Private equity and venture capital firms logged 70 exits from mainland China-based companies in the first half, according to Market Intelligence data. Repeating or exceeding that number in the second half would push exits in mainland China to their highest level in at least six years.

For IPO exits, only a handful of mainland China-based companies backed by private equity or venture capital firms opted to list on the Hong Kong Stock Exchange in the year through July 31.

The May IPO of casual dining brand Green Tea Group Ltd., backed by Partners Group Holding AG, was the only foreign private equity-backed IPO in the covered period. The other listing was Unisound AI Technology Co. Ltd., which is backed by Qiming Weichuang Venture Capital Management (Shanghai) Co. Ltd.

However, counting all listings between Jan. 1 and June 30, the Hong Kong Stock Exchange was the venue for 210 IPOs overall, up from 182 IPOs in the first half of 2024. The number includes dual listings, when a listed mainland firm floats additional shares on the Hong Kong exchange.

"You are hearing about quite an uptick in the Hong Kong Stock Exchange IPO listings, and mainland China is definitely the number one reason for that," Geminder said.