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Prickly Times for Privatization & Private Equity

Investors in China have plenty to read (and worry) about these days (see more here [1] about changing attitudes to foreign investment). In the latest round, we have news about an anti-privatization lobby, and the continuing problems for private equity investors.

A story carried by AP, notes that there is a growing movement to protect state assets as a tool for managing the economy and providing social benefit, and to oppose the new Property Law [2]. A petition from scholars and retired officials notes:

Although the petition seems not to have official support (AP notes that various websites that carried it have been blocked) it is a reminder of ongoing debate (and division) as China grapples with how best to develop its “harmonious society [3]”.

The role of foreign money is also in the frame, and we have seen plenty of news about Carlyle’s battle for Xugong [4](ending in much-reduced bid, which is still being discussed). The FT reports that some private equity investors have taken note of the change in attitude that the government has to their wads of crisp bank notes:

So minority stakes may be less threatening and more palatable, especially when dealing with leading companies. However, as the FT points out, there are examples of bigger, majority deals (eventually) getting through – such as the US$325 million acquisition of the meat processing group Shineway by Rotary Vortex [5].

The key seems to be in the strategic (or otherwise) nature of the target (from the Chinese perspective). Future targets will likely be picked cautiously. As ever – watch policy announcements with interest, and do not ignore the competing agendas that are being argued about behind closed doors.

See news sources: