And Finally…Approval (of Sorts) for Carlyle

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The long-running saga of Carlyle’s bid to buy into Xugong Group Construction Machinery seems to have reached an end. Forbes reports:

    “China’s State-owned Assets Supervision and Administration Commission (SASAC) has approved US-based Carlyle group’s plan to buy a 50 pct stake in Xugong Group Construction Machinery Co Ltd, the Economic Observer reported, citing an unidentified source…Carlyle earlier agreed to pay 375 mln usd for 85 pct of Xugong Group in October 2005.”

The lower stake was agreed recently, after government intervention, amid fears that foreign firms may be getting control of China’s emerging corporate giants on the cheap. I will repeat what I said in that last post:

    “While hostility to foreign investment is far from universal, it is clear that foreign investors should be increasingly sensitive to the direction of the political wind, and should be aware that any significant deal involving leading, or strategically important, Chinese companies is likely to attract an unwelcome degree of scrutiny by the government.”

While there are big profits to be made in China, foreign companies must remember that this is still a “socialist market economy” with “Chinese characteristics”, and that the strategic concerns of the government, as well as local stakeholders, need to be taken into account when planning investments. While the temptation to go straight for the big corporate prizes may remain, any company considering this approach should plan for a long process, and should understand that they are not getting involved in a simple economic transaction – something more strategic than money will need to be on the table. As a result, I suspect that second-tier targets may start to receive a lot more attention.

And finally… when in China, do not underestimate the continuing impact of government policy on business!

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One Response to “And Finally…Approval (of Sorts) for Carlyle”

  1. Archive » 85%…50%…45%. Carlyle’s China Trials. | China Business Blog Says:

    […] chase of Xugong, a big state-owned construction machinery company. And the FT reports that the deal is still not done…after 18 months of effort: “Carlyle agreed in October 2005 to p […]

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