China and Southeast Asia Private Equity: 2025 Outlook and 2024 Observations

As we welcome 2025, I wanted to share some thoughts on the year ahead for China’s and Southeast Asia’s private equity investment landscape, based on trends we have seen in 2024.

A Focus on Liquidity and Exits

Liquidity issues and the exit environment will very much remain top of mind for private equity investors in China and Southeast Asia in 2025 when they consider making new bets. While many PE managers successfully returned capital to LPs in 2024, the uncertainty surrounding exit pathways also made it crucial for investors to have a clear strategy for monetizing their investments from the outset. This resulted in a deliberate effort to identify assets and strategies that could potentially be sold to strategic buyers or other private equity funds, as sponsors have become wary of relying solely on public listing as a source of exits.

Geopolitical and Economic Headwinds

Throughout 2024 investors remained interested in deal opportunities within China but exercised caution due to geopolitical risks. Domestic economic headwinds also persisted, although this was somewhat offset by lower valuations, making certain assets more attractive. However, geopolitical concerns, including tariffs and export controls, remained top of mind for investors. The Biden Administration's outbound investment rules and export controls on advanced technologies added to the uncertainty. Going into 2025, private equity investors are closely monitoring the U.S.’s incoming administration for anticipated actions on regulations and tariffs that will impact deal-making activity in China and the wider Asia Pacific. Geopolitical tensions between the U.S. and China will continue to be important, precipitating a greater need for approaches and tactics that mitigate political risks on investments.

Risk-Mitigation Investment Strategies

In 2024, investors favored certain strategies that mitigated the aforementioned risks relating to investing in China.  Trends we noted, which are expected to continue in 2025, include: 

• A focus on assets that will benefit from growth in domestic consumptions in China, such as consumables and health care-related products. Consumption-related businesses, assets with less exposure to tariffs and export control regimes, and with the potential to expand within the Chinese market, were more attractive to investors in the current climate.
• Identifying offshore businesses that could benefit from a potential economic rebound in China, that are concurrently well-diversified enterprises. Such “China ex-China” strategies also include targets that can diversify an investor’s geographic footprint (through organic growth or bolt-on acquisitions), with expanding into Southeast Asia being a common theme.

Continued Growth of Infrastructure and Social Infrastructure Sectors 

We also expect that the 2024 growth in infrastructure-related deals in Asia will continue into 2025. Investors were particularly drawn to infrastructure assets involving data centers and energy transition assets – a key global investing trend to harvest the potential and reap the rewards of an AI-enabled economy. We have also seen noticeable interest in social infrastructure, including health care facilities and care homes.