Private equity (PE) investment in China has picked up momentum in tandem with the ongoing economic restructuring. Emerging sectors, providing better investment returns, have become the new pillars of the world's second largest economy.

The combined size of committed capital in all 52,403 PE and venture capital (VC) funds registered with the regulator topped 12.28 trillion yuan ($1.8 trillion) as of April, rising by 380 billion yuan ($55.15 billion) that month alone, according to the Asset Management Association of China. As of April, the sector had 225,600 employees.

Unlike investment in publicly traded companies, PE investment is made by PE, VC or angel investors, providing capital to target companies or nurturing the expansion of start-ups.

Chinese investors' enthusiasm has become skewed toward emerging sectors and start-ups with sunny prospects rather than stock markets. Nearly 5.6 trillion yuan ($812.8 billion) was managed by funds devoted to equity investment as of April, surging 19.3 percent from the end of last year. Funds specializing in investing in stock markets declined 13.3 percent over the period to around 2.4 trillion yuan ($348.3 billion).

The benchmark Shanghai Composite Index closed at 3,154.66 points on April 28, the final trading day of the month, barely moving from the 3,103.64 points at closing on December 30, 2016, as market sentiment was weighed on by a slew of regulatory measures to contain financial risks.

Emerging sectors such as smart manufacturing, the sharing economy and industrial robots gained traction against the backdrop of economic restructuring as well as mass innovation and entrepreneurship.

Despite the global easing of fundraising and investment as a whole, China saw a 49-percent jump in PE and VC investment last year, according to a recent report from accounting firm PwC.

China is moving toward an economy driven by consumer spending, innovation and services, reduced reliance on investment and the export of low value-added goods.

The annual sales revenue of smart manufacturing equipment will reach around 3 trillion yuan ($435.37 billion) in 2020, according to a recent industry report.

Hi-tech and low-carbon products witnessed faster production growth in the first four months this year, with the production volumes of industrial robots and solar batteries surging 51.7 percent and 18.2 percent, respectively, according to the National Bureau of Statistics.

"The Chinese economy was confronted with new bottlenecks, and it had to transition from a growth mode focused on scale to one focused on efficiency, and from one reliant on resource inputs to one reliant on innovation," Luo Mingxiong, Director of the Institute of Internet Finance under Shanghai Jiao Tong University, said.

Financial markets will play a role in resource allocation and risk assessment, and more entrepreneurs will embrace PE and VC investment, Luo said.

The view was echoed by Li Zhu, founding partner of Innoangel Fund, who said that a growing portion of the financing provided through traditional means such as bank loans will be replaced by PE, which will register booming growth.

Li emphasized investment opportunities in artificial intelligence (AI) and creative industries.

The latest figures from China Venture, an industry information provider, showed that most big PE deals in April happened in the medical and IT sectors.

Tech fields such as AI, big data, cognitive learning and robotics are expected to continue to receive strong attention, accounting firm KPMG said in a recent report.

Although investors in Asia were cautious, China remained the top destination for VC investment in the continent, with Chinese bike-sharing platform Ofo raising $450 million, the largest investment in the sector on record, KPMG said.

This is an edited excerpt of a commentary published by Xinhua News Agency

Copyedited by Sudeshna Sarkar

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