The flow of foreign capital into China from offshore investment firms dwindled during the first quarter of the year. But private equity professionals still see China as one of the most attractive areas for investment in the world.

Investment professionals from around the world gathered at the Westin Hotel in New York last week to discuss the investment climate in China during the financial downturn at the 2009 China Venture Capital & Private Equity Forum.

Zero2IPO, a market research and financial advisory firm that hosted the conference, revealed new data showing that foreign-based venture capital and private equity investment in China has dropped significantly during the first quarter of the year.

The number of venture capital deals in the first quarter was 53, barely more than one-third the 153 deals reported during the same period last year. The number of private equity deals stood at 19, less than half of the 41 private equity deals struck during the first quarter of 2008. The value of the deals in venture and private equity has also declined.

Fundraising for new pools of investment capital dropped to about US$889 million in the first quarter, compared to US$2.27 billion during the same quarter last year. And the domestic market to take private companies public on the Shanghai and Shenzhen stock exchanges has remained closed in China while it is being reformed, according to the report.

"It's been very, very tough," said Gavin Ni, founder and CEO of Zero2IPO. "The global financial crisis is affecting China. But valuations are also going down so it's a good time to make investments."

Despite the slowdown on the investment side, China still represents a good investment opportunity compared to the rest of the world, as the country's economy grew by about 6.1 percent in the first quarter. As China grows, hundreds of millions of new workers will be added to the workforce with money to spend in the domestic economy, investment professionals at the conference said.

This growth makes consumer-driven businesses attractive investment opportunities for private equity and venture firms. About 400 million households in China have at least one television, according to Andrew Yan, managing partner with SAIF Partners, a private equity firm that invests in China. The Internet and mobile technology combine for a market of about 1 billion customers, according to Hugo Shong, founding general partner with IDG VC.

"We see a lot of opportunities to invest in companies that provide services that reach 1 billion people," Shong said. "It's a huge market."