China’s infrastructure-driven boom is cooling, and private equity investors are working out how to negotiate the changing investment climate.

The boom in infrastructure spending that started in 2008 to try to insulate China from the global economic slowdown left local governments with dangerous levels of debt. They borrowed through bank loans and via bond issues till they hit their direct borrowing limit, then set up special purpose local government investment vehicles to borrow even more capital. Private equity companies decided not to go head-to-head with this lavish spending and instead put money into the private sector.