Acquisitions hit $3.37 trillion worldwide in 2006, of which $560 billion involved some private equity funds; private equity firms launched five out of the six largest acquisitions in the United States in the same year, Zeng continued.

Chinese companies have teamed up with some foreign private equity firms to conduct overseas acquisitions in recent years. Lenovo Group Ltd., for example, received support from Newbridge Capital LLC in acquiring IBM's Personal Computing Division in 2005. Newbridge Capital and two other U.S. private equity firms-Texas Pacific Group and General Atlantic LLC-later invested $350 million in the Lenovo Group Ltd.

Private equity funds can offer more support than financing and avoiding policy obstacles.

"Managers of large private equity funds have rich experience in multinational acquisitions and they can provide detailed technical support and push through the acquisition," said Zeng. "One more thing is that they are looking for appropriate pullout strategies for a number of projects they have invested in worldwide, and they will recommend some of their investments to Chinese partners as one pullout strategy."

Blackstone Group, for example, purchased a 20-percent stake in state-run chemical maker China National BlueStar (Group) Corp. for $600 million last September. Two months after the deal, the private equity firm teamed up with BlueStar's parent company China National Chemical Corp. (ChemChina) in a $2.6-billion bid for Nufarm, an Australian agricultural chemical maker.

"In this case, Blackstone offered ChemChina technical support in acquiring Nufarm and will provide Nufarm with additional financing channels and their professional experience to help Nufarm realize strategic growth," Zeng observed.

More than 30 overseas private equity investment firms have set up offices in Beijing, the largest number compared to other Chinese cities, revealed Huo Xuewen, Deputy Director of the Beijing Municipal Development and Reform Commission on May 24 at the 2008 China International Capital Market Forum.

In the first quarter of 2008, 36 Chinese enterprises received investment from these firms, with the total amount approaching $2.7 billion, including $1.33 billion received by Beijing-based enterprises.

Beijing would introduce a series of policies to promote the development of venture capital and private equity funds in Beijing, and as one of these measures, a local association of equity funds is to debut soon in Beijing, disclosed Huo at the forum.

How PE selects

Private equity investment funds usually prefer traditional industries and service industry to biomedical and information technology industries, said Zeng.

"But compared with investing in a chemical company enjoying absolute monopoly status and with stunning profitability, we prefer to do value-discovery investments," said Zeng.

According to Zeng, venture capital and private equity funds have supported 39.2 percent of acquisitions, or a total of $726 million, in the technology, media and telecommunications (TMT) sector in 2006.

He gave the example of small companies in a lucrative industry with high growth potential where every one is small. "In such industries, it's possible for venture capital or private equity to nurture a flagship enterprise," he added.

Private equity investors would like to adopt a more flexible approach in China to become the minority shareholder of a company and help it to secure a public listing, said Zeng.

IDG Ventures, for instance, bought a 4.9-percent stake in the Chinese search engine Baidu for $1.2 million in 1999 and made a profit of around $100 million from Baidu's listing on the Nasdaq market in August 2005, if calculated at the high price of $150 per share.

"Money is not the core competitiveness of a private equity fund," Zeng stated. "Many of the companies we contacted for potential investments would like to discuss what we will offer them besides the money, such as if we can help them enter overseas markets, or seek for a listing, or steer the company toward a better future with the money raised."

"It's also an effective way for a private equity firm to control their risks," Zeng added. "Because we involve ourselves in the operations of our target projects by offering them suggestions on how to make long-term strategies and how to run the company in terms of acquisitions and resource synergy solutions."