China and private equity should be happy bedfellows: the
world's second fastest growing economy and finance's biggest
success story. "Chinese private equity is the final frontier,"
comments Howard Chao, head of O'Melveny & Myers' Asia
Yet when the high-rolling firms try to open their
chequebooks in China, they often have them closed –
normally by the ministry of commerce (Mofcom) or the State
Administration of Foreign Exchange (Safe). Since last
September's M&A regulations, foreign investors have had an
even tougher time; Carlyle's halting bid for Xugong, a Chinese
construction equipment manufacturer, was particularly
disturbing. In October 2005, The US buy-out firm agreed to
purchase an 85% stake in Xugong for $375 million but later
reduced its proposed purchase to 50% when approval of the deal
seemed unlikely. It then reduced its stake to 45%, with the
Chinese government remaining as the majority shareholder.