According to a survey by mainland-based researcher Zero2IPO, a total of US$35.5 billion was raised for private equity investment in Asia last year and another US$50.8 billion for the first three quarters this year. The problem is whether all this money can eventually be used.

'The investors only make a commitment during the fund-raising. The actual amount does not transfer to the private equity firm until it makes an investment,' said Mr Bao.

Starting this year, private equity funds have become cautious about spending their money. Data from the Asian Venture Capital Journal showed private equity investments falling off dramatically quarter on quarter during the year, from US$21.7 billion in the first quarter to US$13.3 billion in the second and US$9.2 billion in the third.

'We usually invest up to US$1 million in each company but due to the worsening economy, we decided to make fewer investments and allocate more capital for each company,' said John Wander, a partner at US-based Next-Gen Ventures.

'We want to give our invested firms a longer period before they have to raise another round.'

He said venture capitalists were now more cautious and would only invest in firms that were 'must have' but not 'nice to have'.

'The traditional venture capital model is broken. In the past, a lot of huge funds were chasing a very few Googles. As their fund sizes are too big, they cannot invest in a company very early. They have to change now.'

Laurie Kan Jiran, principal of On Capital China Fund, said now was the best time to invest in firms that were engaged in countryside construction and cable network infrastructure business.

'Infrastructure companies are depression-defensive if their cash flow is good. They may just need some bridge loans to extend their [initial public offering] plan,' he said. 'We are keen on cable network firms as the Chinese government's policy is very supportive of the migration of analogue to digital network.'

Mr Bao said: 'During an economic downturn, companies which provide cheaper and more efficient products or services will do well.'

He said retailers for consumer staples, budget chains for health-care services and education would perform well, but retailers for luxury items would be hard-hit.

Budget hotels on the mainland was another sector Mr Bao thought would suffer, as most of their customers were small and medium-sized firms which were hit by the current crisis.

The online gaming industry, meanwhile, should do well, as it was a 'cheaper form of entertainment' for mainland teenagers and young adults, he said.

Some venture capitalists are seeking opportunities in the mainland's advertising and digital media sector.

'China is now the second-largest advertising market in Asia after Japan,' said Yong Li, a vice-president of Carlyle Asia Investment Advisors. 'The mainland advertising market is growing very fast while the outdoor media industry is inefficient and fragmented.'

He said there were about 17,000 media players which owned billboards along highways and liquid-crystal display panels in public places across the country.

Mr Wander said: 'We are interested in companies that are making digital online film and music, live streaming or social network aggregator businesses. Software applications that can convert Web content into a user-friendly platform in mobile telephones or software for green technology are our targets.'

Social network aggregators, including MySpace or Facebook, refer to websites that can pull together information into a single location, or help a user consolidate multiple social networking profiles into one profile.