A decade ago, China looked more like a complete investment destination. Today, the China factor has separated into distinct capital propositions. Therefore, the relevant question woule be which Chinese markets, industries, technologies and capabilities can still create a sufficiently attractive value differential under today's risk pricing.
I began working with Chinese companies on their international expansion in the 2010s. Looking back, that period now feels surprisingly distant. If a transaction offered a sufficiently clear China growth story, capital markets were naturally inclined to take a closer look. Large acquisitions, rising consumption, technology driven marketplaces and industrial expansion kept the China factor in the spotlight of global capital allocation.
The picture changed remarkably after the pandemic. COVID-19, interest-rate increases, supply-chain security, geopolitics and economic sovereignty all moved onto the agendas of boards and investment committees. In Europe today, public discussion of China is more often framed around competition, dependence and de-risking. It looks like that the China factor is receding from European capital markets.
Yet after following private equity, alternative assets and industrial projects over the past few years, I increasingly believe that a simple advance-or-retreat narrative misses capital’s most important characteristic. Capital seeks returns. Interest rates, liquidity, policy and technology cycles change both its price and its route.
A friend once put it well: capital is like water. As long as there is a difference in elevation, it will keep searching for a new path, even when dams and floodgates stand in its way.
Seen through that lens, the past fifteen years do not look like the disappearance of the China factor. What changed was the source of the differential that capital was seeking.
Before COVID-19: Capital Searched for Growth, and China Offered a Powerful Growth Differential
The low- and even negative-interest-rate environment that followed the global financial crisis is an essential starting point for understanding capital markets in the 2010s. The European Central Bank kept reducing policy rates; one of its key rates moved below zero in 2014 and fell further to -0.5% in 2019.[1]
In that environment, capital faced a practical problem. When deposits and low-risk bonds offered little return, investors moved toward assets with higher risk and stronger growth potential. Lower interest rates also meant that investors were willing to pay more today for a company’s future growth.
China combined many of the variables that attracted capital at the time: rapid economic expansion, urbanization, rising consumption, manufacturing growth and technological adoption. Blackstone, KKR, Eurazeo or Cathay Capital, among others, built exposure to China in different ways. To me, the simplest summary of that era is that capital followed growth.
I therefore prefer to say that capital did not enter China merely because the assets carried a China label. It entered because the growth differential was there.
After COVID-19: Liquidity, Rather Than Growth, Became Scarce
From 2020 onward, capital markets entered a different pricing regime. The pandemic disrupted economic activity. Rapid rate increases then made borrowing more expensive for companies and funds, while geopolitics added further uncertainty to cross-border transactions. One of the European Central Bank’s most closely watched policy rates rose from -0.5% in 2019 to 4% in 2023, illustrating the sharp increase in the cost of capital in Europe.[1]
For private equity, the impact was direct. Debt-funded acquisitions became more expensive. Investors were prepared to pay less for future earnings, while sellers often continued to benchmark expectations against earlier, higher valuations. As the gap between buyer and seller expectations widened, transactions slowed.
Bain’s assessment of 2023 is particularly telling. Buyout deal value and deal count were down 60% and 35% from their 2021 peaks respectively, while exit value fell 66%. Bain described liquidity as one of the private equity industry’s most pressing problems.[2]
This helps explain an important change in the language of private equity. The topic changed from “How do we invest?” to “How do we exit?” The assets had not necessarily deteriorated, but funds have finite lives, investors need cash distributions, and capital must eventually find an exit.
The Rise of Secondaries: Capital Began to Price Liquidity Itself
This is why I have become increasingly interested in the secondary market. It is not a substitute for primary investment. It is infrastructure that private markets have gradually developed to address their own liquidity constraints.
Bain estimated that global buyout portfolios still contained approximately US$3.2 trillion of unrealized value across about 28,000 unsold companies in 2023. Fundraising for secondaries increased by 92% that year.[3] By 2025, global private-market secondary transaction volume had reached a record US$226 billion, up 41% from 2024, according to J.P. Morgan citing PitchBook data.[4]
A continuation fund offers a straightforward illustration. Suppose a private equity fund has owned a company for several years. The company is performing well and still has room to grow, but the original fund is nearing the end of its life. The manager can sell the company into a newly created continuation vehicle. Existing investors who want liquidity receive cash. Those who remain confident can roll their investment forward. New investors gain exposure to a more mature asset with an established operating record. EQT notes that continuation funds are increasingly being used to provide liquidity when traditional exit routes are limited, and that they accounted for 9% of private equity distributions to investors in 2023.[5]
The company does not suddenly acquire two different values. What differs is the investors’ time horizon, liquidity needs and risk tolerance. The secondary market exists because of this liquidity differential.
Today: Capital Is Seeking Liquidity and Renewed Growth at the Same Time
In the more complex market environment today, capital markets continue to pursue liquidity, while also have to keep seeking renewed growth. Compared with the 2010s, growth capital is more selective and much more focused on specific sectors.
One route is to create more operating value within existing portfolio companies. EY’s State of Private Equity Report Europe Q2 2025 describes a deeper strategic shift: with financing still costly, private equity firms are doubling down on operational value creation rather than relying on financial engineering.[6] It also notes that longer holding periods and a higher cost of capital are making operational due diligence and quantified value-creation plans increasingly central to the investment process. For European companies, the China factor no longer has to mean acquiring a business in China. It may instead mean Chinese customers, supply chains, manufacturing efficiency, industrial partners or technology ecosystems.
The other route is to seek excess returns from innovation, which is particularly visible in healthcare and robotics in relation with China.
In April 2025, Sanofi and Cathay Capital jointly established a pharmaceutical innovation fund of approximately RMB 2 billion in Shanghai. The fund will invest in innovative drug pipelines that have already entered clinical development in China, as well as related industry opportunities.[7][8] The significance of this example lies in its precision. Capital is no longer making a broad bet on China growth. It is assessing whether a specific innovation ecosystem offers a sufficient technological, clinical and commercialization differential.
Robotics is showing very similar signals. In 2026, XPENG’s robotics business raised more than US$900 million at a post-money valuation exceeding US$6.3 billion. The round was led by IDG Capital, with participation from Gaorong Ventures and strategic support from Tencent and Alibaba.[9][10] PitchBook reported that global robotics and physical AI funding reached US$18.6 billion across 450 deals in the second quarter of 2026.[11]
These examples do not prove that Chinese assets are again attracting capital across the board, and I do not believe they should be interpreted that way. They show something more specific: when broad growth narratives lose their appeal, capital continues to search for new differentials in technology, efficiency and commercialization. Country labels matter less, while individual risk-return propositions matter more.
The China Factor Has Not Disappeared. It Has Fragmented into Specific Propositions
A decade ago, China looked more like a complete investment destination. Today, the China factor has separated into distinct capital propositions. For mature companies, it may mean markets and supply chains. For portfolio companies, it may mean operating efficiency and industrial capability. In secondaries, it may appear on one side of a liquidity transaction. And in innovative medicines, robotics and AI, it may once again provide exposure to growth and innovation.
This is the conclusion I increasingly favor: China is no longer a single investment thesis. It is a set of risk-return propositions that must be priced separately.
Capital Has No Passport, but Always Has a Price
Capital does not ignore politics. Policy raises transaction costs. Regulation limits investment boundaries. Geopolitics changes capital routes, while interest-rate movements directly affect financing costs and asset valuations.
But whenever a meaningful differential persists between two markets, two assets or two points in time, capital will search for an investment structure that allows it to keep moving.
The more relevant question may therefore no longer be whether capital will continue to flow toward China. It is which Chinese markets, industries, technologies and capabilities can still create a sufficiently attractive value differential under today’s risk pricing.
Disclaimer:
This article is based on an original piece published by the WeChat account “EU-CN_Ind_Insights” and edited by EqualOcean. The views expressed are solely those of the original author. No organization or individual may scrape this article or use it to train AI models without the rights holder’s authorization.
Sources
[1] European Central Bank: Key ECB interest rates
[2] Bain & Company: Private Equity Outlook 2024 - The Liquidity Imperative
[3] Bain & Company: Have Secondaries Reached a Tipping Point?
[4] J.P. Morgan: Private market secondaries are booming amid an IPO slowdown
[5] EQT: The Rise of Continuation Funds in Private Equity
[6] EY: State of Private Equity Report Europe Q2 2025 View source
[7] Shanghai Municipal Government: Sanofi-Cathay pharmaceutical innovation fund
[8] Cathay Capital: Establishment of the Sanofi-Cathay pharmaceutical innovation fund
[9] XPENG: Robotics business raises over US$900 million
[10] Sullivan & Cromwell: XPENG robotics US$900 million financing
[11] PitchBook: Q2 2026 Robotics & Physical AI Report
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