One can learn a lot from historical trends, including in the private equity world.

A 2020 research by PitchBook found that PE firms’ best returns tended to follow periods of recession. More specifically, fund vintage performance is best in the one to two years following a crisis as funds are able to find attractive – and lower – entry valuations during periods of distress, which then get a boost as markets recover.

Of course, investing in a post-crisis period is never easy or simple, and limited partners (LPs) and general partners (GPs) will need strong risk tolerance. That is why where to invest becomes more important than ever.

Putting China high up on the agenda in 2026 can pay off for many reasons.

China’s macro environment, for one, has got a boost. Exports are solid, aggregate GDP growth is steadying, fixed investment towards artificial intelligence is strong, the domestic consumption story remains positive, and the International Monetary Fund is predicting 4.4% growth in 2026. More global interest in owning renminbi assets has strengthened the currency, while China’s supply chain pressure is moderate relative to many other markets.

At the same time, many multinational corporates and investors are increasingly reassessing their China footprint and capital allocation priorities. More corporate carve-outs, divestments and restructurings are in the works as multinationals look to de-risk their China exposure, creating investment opportunities for private equity. This shift is expanding the supply of complex, high-value assets—an opportunity well-suited to experienced PE firms.

Market positioning

For private equity firms, the current market setup is increasingly compelling. Historical PE performance data is one thing. How the market is shaping up now is another.

Prices for assets in China’s secondary market are at steep discounts to net asset value, with asset quality overall remaining reasonably high. Valuations have also seen a reset, leading to attractive opportunities.

The fact that China is a hotbed of innovation – be it with robotics, humanoids, automation or advanced manufacturing – also means the market’s prospects are promising for firms willing to play the long game.

Tony Wang, Partner at Euro-Asian advisory firm Nordic Match, says China looks increasingly compelling for European strategics, thanks to the combination of cutting-edge innovation in emerging technologies, competitive infrastructure, stable energy costs, and a highly dynamic workforce.

“What we're seeing in boardrooms is a meaningful shift: for many European corporates, the second growth curve will be driven by inorganic rather than organic strategies. The organic playbook has largely run its course. M&A is now where the real opportunity lies,” says Wang.

Admittedly, first-quarter numbers were lacklustre. Overall Greater China M&A deal value tumbled 59.1% year-on-year to US$86.9bn, while volume slipped 10.9% to 766 transactions. However, PE activity staged a rebound, with buyout value jumping 47.9% year-on-year to US$13.8bn, shows data from Mergermarket. This divergence suggests that while overall dealmaking remains subdued, private equity is already repositioning for the next cycle.

Some high-profile deals have hit the market. Carlyle exited its stake in autonomous driving firm WeRide, and EQT divested from JD Industrials, both through listings on the Hong Kong exchange.

While more founder-led buyouts, carve-outs and cross-border control deals are in the pipeline, getting them all past the finish line won’t necessarily be easy. Wang points to geopolitics remaining the single biggest execution risk, introducing “an unpredictability that simply doesn't exist when the target is in the US or Europe”. Managing that dynamic, and helping clients distinguish between geopolitical noise and genuine deal risk, will be a nuanced but essential ask of advisors.

Geopolitics remains the primary execution risk, introducing unpredictability into cross-border deals. For advisors and investors, the challenge is separating noise from material deal risk.

How should PE firms respond?

For GPs to succeed in China, a few things are key:

• Invest at the right time. Post-crisis vintages have historically performed well, and with China now putting its property market stress and economic upheavals behind it, the 2026 vintage may just reflect that turnaround and optimism.
• Sector focus will be an important differentiator. As Wang puts it, investors targeting segments where China is establishing real global leadership – like new energy, robotics, advanced manufacturing or automotive technology – will gain access to the most cost-competitive and scalable assets in those industries.
• The winning deals will be those that work both in the boardroom and on the factory floor, according to Huaimin Wu, Partner at Industrie Consult China. In the manufacturing sector, this means investors need strong local teams, clear decision rights and a practical plan to connect global technology with China’s suppliers, engineers and customers, he says.
• Strategic logic is essential. While sentiment towards China has improved somewhat in 2026, it is still below levels seen for intra-European or US investments, says Wang. Targeted, conviction-driven M&A deals focused on specific segments with a genuine competitive edge and a clear path to winning will see better success rates.

For well-positioned PE firms, the current environment presents sound opportunities. Firms that can navigate broader market volatility, have a long-term and strategic vision on China, time deals well, and double down on the right sectors are likely to benefit most in the years ahead.