Why are private equity firms struggling to exit their China investments

China's slowing economy and falling valuations have made exits harder for private equity firms, delaying capital returns and disrupting global investment cycles

World’s largest private equity firms are struggling to sell companies in China, leaving billions of dollars locked in investments and slowing the flow of capital across Asia. Data from PitchBook and Dealogic show that major buyout groups, including KKR, Blackstone, CVC Capital Partners, Warburg Pincus and The Carlyle Group, completed no publicly disclosed full exits from mainland Chinese buyout investments in 2025, according to a report by the Financial Times.

 

The current economic slowdown demonstrates a global pattern, where private equity firms are maintaining their assets for extended periods because current interest rates are high and market valuations remain below optimal levels, thus restricting their options to divest companies and distribute funds back to investors. Globally, unsold private equity assets reached $3.8 trillion in 2025, the report added, highlighting a growing backlog across markets.

 

Why are private equity exits in China slowing down? 

Private equity firms achieve financial returns when they sell businesses after their operational and financial improvements. The firms usually exit their investments by either selling to other companies or through initial public offerings.

 

But in China, several structural factors have made these exits difficult. Asset valuations have fallen in recent years due to weaker economic growth and reduced investor demand, while Western institutional investors have also reduced exposure to China amid geopolitical tensions and regulatory uncertainty, the Financial Times reported.

 

The exit slowdown has forced investors to hold assets longer than planned, which in turn delays capital distributions to pension funds, sovereign wealth funds and family offices that invest in private equity funds.

 

The problem has been further bolstered by higher global interest rates, which have reduced borrowing capacity and lowered company valuations. This has made acquisitions and public listings less attractive, further slowing exit activity.

 

How severe is the liquidity crunch in China’s private equity market?

The lack of exits has created a liquidity gap across China-focused private equity funds, while secondary market transactions, where investors sell stakes in funds to other investors, are happening at significant discounts.

 

Across Asia, FT said, private equity fund stakes have traded at average discounts of about 44 per cent, with China-specific funds seeing discounts as high as 40 to 50 per cent.

 

Investors across the world have started using secondary markets as their primary method for generating liquidity. In 2024, investors exited through secondary private equity transactions that reached a total of $162 billion while they searched for exit options beyond traditional IPO and acquisition routes.

 

Are IPOs helping private equity firms exit Chinese investments? 

Hong Kong’s stock market has seen a recovery in listings, raising about $35 billion in 2025, which has allowed some private equity firms to exit smaller investments, particularly those made through venture-style stakes rather than full buyouts, FT reported.

 

However, there are early signs of limited recovery this year. In January, Bain Capital completed the sale of its China-based data centre operator Chindata at a valuation of about $4 billion, in which the buyers included a Chinese industrial company and government-linked investors.

 

This marked one of the first major exits by a global buyout firm in mainland China in nearly two years.

 

However, most exit activity has involved domestic buyers rather than international investors, reflecting reduced cross-border deal activity.

 

How is the exit slowdown reshaping private equity investment in Asia? 

Consequently, private equity firms are increasingly shifting capital toward other Asian markets where exits are easier. For example, Japan and India have attracted significant investment due to stronger economic growth, governance reforms and deeper capital markets. At the same time, some firms continue to raise Asia-focused funds, indicating that long-term interest in the region remains strong despite the current exit challenges, FT said.

 

Therefore, although China remains one of the largest private equity markets globally, the current exit constraints point to structural challenges in converting investments into realised returns.