Client conversations in Beijing point to a market that is beginning to move again, though in a more selective and hesitant way than in earlier cycles. There are promising signs of successful fundraising activity.
Compared with recent years, new fund discussions are more active and a growing number of processes are progressing towards initial close. But this is not yet a broad-based rebound. LPs remain cautious, confidence takes longer to build, and decision timelines are extended. Capital is returning selectively, naturally with an initial focus on the more obvious and lesser-challenged opportunities in technology, AI and healthcare specialities.
Commitment sizes of new funds may be smaller than predecessor vintages
One consequence is that fund size matters more than it once did. In the current environment, smaller, venture-focused strategies are often an easier starting point for international investors reassessing the China market. Large buyout or flagship vehicles will certainly attract interest, but likely from a more selective group of re-up LPs who are now under-allocated to China in a world full of macro uncertainties and global “unknown unknowns”.
Shorter investment periods and more specificity on the initial pipeline can help managers re-establish a track record and build investor confidence before returning with an additional fundraise relatively soon.
Differing roles for domestic (RMB) and overseas (USD) fundraising
Another clear theme was the continued divergence between domestic (RMB) and overseas (USD) fundraising conditions. Both are challenging, but for different reasons.
It is interesting to draw a contrast between domestic fundraising in China and in Japan. In China, most domestic investors are ultimately local or central government institutions. Their requirements are only partly financial return, but more about stimulating investment or bringing business to certain industry sectors or regions. This is not necessarily easy for GPs to accomplish.
Japan, by contrast, has a very deep pool of independent central and regional financial institutions who invest directly for returns. A consequence is that whilst Japanese GPs may never need to look to overseas investors if their business ambitions can be accommodated domestically, Chinese GPs tend to see domestic fundraising as an interim approach until overseas investors can be tempted to return in volume.
Fundraising for China-focused USD funds is still challenging. Even so, the picture is not uniform. Interest is re-emerging among overseas investors, particularly in areas such as AI, robotics and related enabling technologies, where China’s structural strengths remain compelling.
AI and robotics interest remains strong
Those sectors featured prominently in discussions. AI and robotics continue to attract attention and, in some segments, deal activity is moving quickly. Even so, valuations remain materially more attractive than in the US.
Investor approaches to AI are becoming increasingly differentiated. Whilst some continue to focus on software and large model strategies, others are placing greater emphasis on connected sectors, with growing interest in hardware, infrastructure and AI enabled robotics, where competitive advantages may prove more durable over time. Rather than converging on a single dominant approach, this reflects an investment landscape in which capital is being deployed across a broader range of specialised AI related opportunities.
Recent global events have had an unexpected silver lining for China
Whilst global macro and geopolitical uncertainty continue to shape LP behaviour, discussions suggest that investors are increasingly adjusting to these conditions rather than stepping back entirely.
Recent events in the Middle East have been interpreted by some investors as a positive for China. China has a different energy policy from Europe and the US. From a market and political viewpoint, China may also be starting to command a stability premium. This is feeding through into fundraising dynamics, but of course global uncertainty is never good for fundraising.
What this means for GPs in China
For GPs in China, 2026 will be a year in which fundraising initiatives, even where ambitions have been scaled back from past cycles, will likely be rewarded with concrete results. There is a strong sense that market improvements are structurally very well supported.
If you would like to discuss any of these themes further, please do get in touch.
