In an interesting turn of events, Brazil has passed China as the number one destination for private equity investments. In the economic and political realm this is an important occurrence as it is evidence of many of the different topics I have previously discussed in regards to China. This includes potential political instability, an economy stifled by restrictions, and consistent issues with human rights.
Brazil is less competitive and is perceived as having little or no political risk.
-Sarah Alexander, CEO/President of Emerging Market Private Equity Association
Is this the most significant thing to ever happen? Certainly not. However, it shows that the world is apprehensive about China’s future. Private Equity is a form of investment in which the investor gives money to a company and in return gains a significant portion of said company. What is important to note here is the aspect of ownership, and that as China’s fall in the rankings is evident of people’s decreased willingness to take ownership of a Chinese entity do to uncertainty. 24% of private equity investors cited political risk as a factor deterring their investment in China whereas in Brazil only 3% voiced this concern.
Do not get me wrong however—China is still number two in the world and is regarded by many as a highly attractive investment opportunity. The growth potential is tremendous as is shown by its 9.7% growth rate this previous quarter, and opportunities are present.
As I previously noted what interests me most about the change is the actual change itself. In some of my older posts I discussed the fact that at some point in the near future I thought signs of instability in China would emerge. This may not be a massive situation, however it is indicative of the larger issue at hand: people are skeptical of China because of the way it operates. I firmly believe that it is only a matter of time before we see some massive changes.