Faced with strong macroeconomic headwinds, private equity (PE) investments in Greater China fell to an eight-year low at $62 billion in 2022, according to Bain & Company’s Greater China Private Equity Report 2023.

The average deal size was $82 million, the lowest since almost a decade, while deal count shrunk 38% year-on-year (YoY).

Growth deals, however, continued to dominate in the region, representing 74% of the total deal value. The region saw multiple billion-dollar deals; the biggest one being semiconductor company Innotron Memory, which saw marquee investors such as Alibaba and Tencent, among others, inject $4.7 billion worth of capital.

The number of deal exits in the region fell to 59 in 2022 from a record high of 90 the year before, mainly due to a lack of trade sales as exits — a possible sign that investors in Greater China are holding out for better market conditions before exiting their investments.

“Greater China’s PE market has traditionally been led by domestic general partners. Amidst uncertain macroeconomic conditions in 2022, domestic GPs were the most active players, especially the RMB funds,” said Bain’s Beijing-based partner Lucia Li.

In March, DealStreetAsia reported that global PE firms were setting up RMB funds to back their bets in the local market. Companies including CapitaLand, Coller Capital, and Lightspeed China have followed suit.

Greater China fundraising as a whole fell to a new low in 2022. The number of region-focused funds fell from 107 in 2021 to 33 last year. The fourth quarter in 2022 suffered the sharpest drop in terms of both fundraising volume and value. 

While the Internet and tech sector continued to hold the largest share of private equity capital in Greater China, the sector’s deal value fell 62% YoY. However, semiconductors and components helped make up for some of the loss, the report added. The sector is expected to be a unicorn breeding ground in the nation’s startup ecosystem.

Multiple Chinese semiconductor companies have received large cheque sizes in a dealmaking flurry, including ESWIN Materials, Keyang Semiconductor, Semiconductor Energy, SJ Semiconductor, and Tian Yu.