China’s Private Equity Exit Drought: A Looming Shift?
For the second consecutive year, major private equity firms are facing significant hurdles in selling their investments in Chinese companies. Ten of the largest buyout firms – including KKR, Blackstone, and CVC – reported zero publicly disclosed complete divestments from mainland Chinese portfolio companies in 2025, according to data from PitchBook and Dealogic.
Global Headwinds and China’s Unique Challenges
This exit drought isn’t isolated to China. Globally, private equity is struggling to realize the blockbuster gains of the past, hampered by rising interest rates and increased competition. Although, China presents a particularly challenging environment for investors seeking to cash out. Despite efforts to ease tensions between Washington and Beijing, the country remains a complex market.
“There’s huge pressure on exits globally and the China teams are under pressure to contribute to that return of capital, so there is a backlog,” explains Matthew Phillips, mainland China and Hong Kong financial services leader at PwC.
Partial Exits and Creative Solutions
Even as complete divestments are scarce, some firms have managed partial sales. Three private equity groups – including Warburg Pincus – confirmed making undisclosed partial sales of Chinese assets in 2025. Firms are also exploring innovative ways to realize gains, including selling companies to themselves.
The Liquidity Gap and Valuation Concerns
A significant “liquidity gap” plagues the China private equity ecosystem. Asset valuations have declined in recent years due to weak economic conditions, low demand, and reduced interest from Western investors. Discounts of 40-50% on Chinese funds have been common over the past two years, compared to 14% in Europe and 12% in North America, according to Jefferies.
Shifting Focus: Japan and India Gain Traction
As China’s exit environment remains tricky, private equity firms are increasingly turning their attention to other Asian markets. Opportunities in Japan, driven by corporate governance reforms and a weak yen, are proving particularly attractive. India is also gaining prominence as an investment destination.
A Glimmer of Hope: The Hong Kong IPO Market
We find emerging signs of potential improvement. The Hong Kong stock market experienced a resurgence in 2025, with approximately $35 billion in listings. This has facilitated some exits for private capital groups through initial public offerings (IPOs), particularly for venture capital-style investments.
EQT, for example, fully exited investments in JD Industrials through a listing on the Hong Kong stock exchange. Carlyle Group also recouped funds from the IPO of autonomous driving company WeRide.
Strategic Sales vs. Capital Markets
Despite the positive trend in Hong Kong, some market participants remain skeptical about relying on IPOs for large-scale exits in China. Stephanie Hui, head of private equity in Asia for Goldman Sachs, suggests that strategic sales or sales to other sponsors may be more viable options. “You just need one or two people who would like that particular price,” she noted.
Frequently Asked Questions
- Why are private equity exits in China so difficult?
- A combination of factors, including a challenging economic environment, lower valuations, and geopolitical tensions, are contributing to the exit drought.
- Are all private equity firms struggling with exits in China?
- The data indicates that ten of the largest buyout firms experienced zero publicly disclosed complete divestments in 2025.
- What alternatives are firms exploring to realize returns?
- Firms are pursuing partial sales, secondary sales, and exploring strategic sales to other companies or sponsors.
What are your thoughts on the future of private equity in China? Share your insights in the comments below!
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