“Valuations are too high and it’s getting out of control,” Liu Erhfei told a private equity conference in Beijing. “This is a good time to exit, which by definition means it’s a bad time to invest.”

Li Ka-shing, Asia’s richest man, and central bank Chairman Zhou Xiaochuan have warned that a stock market bubble may be building. A more than doubling of the CSI 300 Index in the past six months has made Chinese stocks the world’s most expensive, at 43 times reported earnings, according to Bloomberg data.

China’s stock valuations “must be a bubble,” Li, chairman of Hong Kong property developer Cheung Kong Holdings Ltd., said Thursday. “As a Chinese, I’m worried about the stock market in China.” Some of the nation’s companies trade at 50 to 60 times earnings, he said.

On Feb. 27, Chinese stocks plunged the most in a decade, triggering a global sell-off, on concern China’s government would clamp down on speculation. Investors have since shrugged off those jitters, and the CSI 300 has climbed 48 percent.

Competition among buyout firms for minority stakes in Chinese companies has intensified after the government in September imposed stricter rules on overseas buyouts. The value of announced foreign acquisitions in China fell 11 percent to US$27.5 billion in 2006, according to Bloomberg data.

Even so, economic growth that has topped 10 percent in each of the past three years is attracting buyout funds flush with cash after raising US$32 billion globally last year.

Excessive valuations “doesn’t mean you shouldn’t invest long-term, but take some of the money off the table,” said Liu, who’s leading Merrill’s private equity push into China.

Blackstone Group LP, the world’s largest buyout fund, in January tapped former Hong Kong Financial Secretary Antony Leung to run its business in China, Hong Kong and Taiwan. The same month, Oaktree Capital Management LLC hired former JPMorgan Chase & Co. Asia Pacific Chairman Ralph Parks.

Cerberus Capital Management LP, which is buying carmaker Chrysler, is opening a Hong Kong office to expand into China, Chairman John Snow said in February.

“There is increasing competition from both domestic and international investment companies and there’s lots of money chasing deals out there,” Kei W. Chua, partner at CCMP Capital Asia, said at the conference. “Obviously, the growth in the A share market is hampering our ability to get deals done at exciting valuations.”

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