Manufacturing PE investment continues to grow, with high-end manufacturing becoming the preferred choice

　　Over the past five years, the scale of VC/PE investment in China's manufacturing industry has shown an overall upward trend. Investment in the machinery equipment sector has been particularly prominent, with a compound annual growth rate as high as 63.8%. ChinaVenture Investment Group analysis suggests that, from 2011 to the present, although the scale of IPOs in the machinery equipment industry has shrunk in the short term (with financing of $77.9 billion representing only 40.7% of the 2010 total), the listing prospects for machinery equipment companies, especially those with high technology and high added value, remain optimistic.
　　Rapid Investment Momentum in Manufacturing Industry; Machinery Equipment Particularly Prominent
　　Over the past five years, the scale of VC/PE investment in China's manufacturing industry[1] has shown an overall upward trend, with a significant surge since 2010. According to statistics from CVSource, a financial data product under ChinaVenture Investment Group, in 2010, the manufacturing industry disclosed 302 investment cases with a total investment of $3.83 billion, representing increases of 42.5% and 103.7% respectively compared to 2009. From 2011 to the present, 239 investment cases have been disclosed, with a total investment of $3.26 billion, accounting for 79.1% and 85.1% of the previous year's total respectively (see Figure 1).

Figure 1: 2006-2011 YTD Private Investment Scale in China's Manufacturing Industry

Table 1: Top VC/PE Financing Scale in China's Manufacturing Industry, 2011 YTD

　　From the perspective of sub-sectors, within the entire manufacturing industry, the investment scale in the machinery equipment sector has shown the most prominent upward trend. From 2011 to the present, 135 cases of VC/PE investment in China's machinery equipment industry have been disclosed, accounting for 56.5% of the entire manufacturing industry. In terms of amount, from 2011 to the present, VC/PE has invested $2.22 billion in the machinery equipment sector, accounting for 68.1%; compared to the total investment of only $510 million in 2008, the compound annual growth rate is as high as 63.8% (see Figures 2, 3, and 4).

Figure 2: Proportion of VC/PE Investment Cases in China's Manufacturing Industry, 2011 YTD

Figure 3: Proportion of VC/PE Investment Amount in China's Manufacturing Industry, 2011 YTD

Figure 4: 2006-2011 YTD Private Investment Scale in China's Machinery Equipment Industry

　　Against the backdrop of a weak global economic environment, slowing demand, and rising costs this year, the improvement in the investment value of the machinery equipment industry mainly depends on the companies' ability to pass on costs, such as transitioning from traditional low-value-added manufacturing to high-value-added operating models such as "manufacturing + services," and thus shifting the pressure from rising costs to the high-end market. This has become one of the most important indicators for VC/PE investment.

Table 2: Top 10 VC/PE Financing Scale in China's Machinery Equipment Industry, 2011 YTD

　　Short-Term IPO Scale Shrinkage; Good Long-Term Listing Prospects
　　From the perspective of capital market performance, the activity of machinery equipment companies in the capital market has been somewhat less enthusiastic than VC/PE investment, especially after many companies went public in 2010. This year, the IPO financing scale of Chinese machinery equipment companies is expected to decrease significantly.
　　According to statistics from CVSource, a financial data product under ChinaVenture Investment Group, the IPO financing scale of China's machinery equipment industry reached its recent peak in 2010, with a total of 100 companies listing on global capital markets, raising a total of $19.15 billion, representing increases of 334.8% and 211.4% respectively compared to 2009. However, from 2011 to the present, although 64 machinery equipment companies have successfully listed, the total financing scale is $7.79 billion, accounting for only 40.7% of the 2010 total (see Figure 5).

Figure 5: 2006-2011 YTD IPO Situation of China's Machinery Equipment Companies

Table 3: Top 10 IPO Financing Scale of China's Machinery Equipment Companies, 2011 YTD

　　The recent sluggish performance of major global economies has brought short-term fluctuations to the activity of the capital market, causing many prospective machinery equipment companies to temporarily shelve their IPO plans. This has also affected the refinancing plans of some listed machinery equipment companies, such as Sany Heavy Industry and XCMG, which have both postponed their Hong Kong IPO plans.
　　ChinaVenture Investment Group analysis suggests that, in the long term, the listing prospects for machinery equipment companies, especially those with high technology and high added value, remain bright. This is particularly true given the policy support, with numerous supportive measures having been introduced. During the 12th Five-Year Plan period, China identified five priority areas for the development of high-end equipment: aviation, aerospace, high-speed rail, intelligent equipment, and marine engineering. The state will invest heavily in these five areas to promote the upgrading of China's equipment manufacturing industry.
　　At the same time, the China Construction Machinery Industry Association's 12th Five-Year Plan also focuses on laying the foundation for the international development of China's construction machinery industry: "Promoting the transformation of China's construction machinery industry from a manufacturing giant to a manufacturing powerhouse, initially forming a research and manufacturing system for host products, basic technologies, and functional components with international leading-edge levels. Major products will reach the average international advanced technological level, achieving a transformation of China's construction machinery industry from extensive, imitative, and quantity-oriented to one focused on technological innovation, quality, and efficiency."