Global private equity funds eye a comeback in China as capital flows pivot from the U.S.

5 November 2025

A view shows EQT AB's logo at the company's office in Tokyo, Japan May 13, 2025. REUTERS/Miho Uranaka/File Photo

Major global private equity firms are signalling a strategic shift back into China after years of reticence, citing compelling valuations and a growing sense that U.S. allocations have become overly concentrated and less opportunistic. This change in posture was highlighted at the Global Financial Leaders’ Investment Summit in Hong Kong, where senior executives described the renewed interest in Chinese assets and the broader Asian region.

One of the more outspoken voices was EQT Asia chair Jean Eric Salata, who said that non-U.S. investors currently feel “overallocated” to dollar assets and are looking to rebalance toward higher-growth geographies particularly China and Hong Kong. He and his peers noted that after a multi-year hiatus, Asia is once again drawing interest because valuations have reset materially, debt remains relatively inexpensive, and market competition has thinned.

Historically, the reasons for global PE firms largely stepping back from China were clear: regulatory tightening from Beijing, exit chaos, economic headwinds, and a frothy valuation environment that offered limited margin of safety. That era appears to be phasing out. A telling indicator is that private-equity dealmaking involving Chinese companies reached about US $25 billion in 2025 already surpassing full-year 2024 totals and anchoring the highest level since 2021.

At the summit, firm heads such as PAG CEO Chris Gradel and Warburg Pincus CEO Jeffrey Perlman made uncharacteristically candid comments for their industry. Gradel described China as offering “almost zero competition” and “some great companies” whose valuations are now “cheap and attractive.” Perlman added that valuations had not yet reset in earlier years, but they now appear to have moved into a more justifiable range for investors willing to engage.

The decision to pivot is underpinned by multiple structural drivers. With increasing global focus on Asia’s growth trajectory, paired with uncertainty in U.S. markets, many funds are pursuing diversification away from a heavy U.S. exposure. At least some senior executives estimate that U.S. allocations may be trimmed by 5-7 percentage points in favour of Asia. Moreover, the Chinese market is hospitable in certain sectors particularly consumer, technology and asset light business models thanks to reset valuations and an evolving policy environment.

Yet this shift is not without challenges. Capital-markets liquidity in China remains less robust than in the U.S. or Europe, and exit options especially via IPOs or strategic sales to foreign buyers continue to carry risk. Geopolitical tensions, regulatory unpredictability and currency exposure remain omnipresent. Funds deploying into China will need to navigate these headwinds carefully and perhaps adopt longer investment horizons.

The implications for regional deal-making are significant. Should allocation flows materialise as forecast, China could witness a resurgence in foreign private-equity investment, launchwaves of exits, and a broader reopening of its capital ecosystem to global players. For local firms, this may mean increased competition for deals, higher valuations, and a shift in the negotiating dynamic vis-à-vis foreign investors who once sat on the sidelines.

From the U.S. perspective this pivot suggests a rebalancing of global capital flows. As funds redirect into Asia, American companies and growth markets may feel the squeeze in terms of available private-equity capital and valuations. Institutional investors will need to reassess their geographic and sectoral exposure, and prepare for a more globally diversified asset-allocation regime.

In summary the narrative is unmistakable: after a period of caution, global private-equity firms are taking a fresh look at China driven by lower valuation levels, diversification imperatives and the belief that the overt U.S. dominance in deal-flow may be giving way. Whether this turns into sustained inflows depends on execution, regulatory stability and the ability of these funds to achieve strong returns in a complex environment. For now Beijing’s reopening to global capital may just be gaining another chapter.