Tom Young
Staff writer

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 practice.

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.

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