i recently learned

in international commercial policy that up to $0.40 of every Chinese FDI $1.00 is fabricated; that is, chinese investors, using vehicles based in hong kong, are investing in china (thus, in themselves), pumping up FDI figures, and capturing the incentives that the chinese government is offering to attract FDI e.g., tax holidays, etc.

this was news to me, and pretty interesting light of csfb's announcement that it is going to be an anchor investor in the first china-only buyout fund.

while there is plenty of opportunity in china, there is plenty of risk as well (even chinese opportunities obey the law of risk/reward, after all), but i think that private equity has a place in thye chinese economy. to the extent that many chinese companies companies are still largely state-owned, pe investors may be able to get in on some of the privatization deals. these companies, based on my research, are inefficiently run (and can't get much worse), so i think that the discipline demanded by pe investors will largely have a positive impact on the governance and operations of chinese companies, as long as government meddling it not involved, and market mechanisms are allowed to act.

still, there are substantial risks, not the least of which is the fact that property rights are non-existent, the legal framework is deeply in need of overhaul, and financial transparency is still much of a pipe dream. pe investors will need to build long-term relationships in china (much like anywhere else), but will have to have especially large appetitites for risk as well as nerves of steel to make money in china.