China: Protectionist? Or Just Picky?

An American private equity group, the Carlyle group, beat out several international competitors and won majority stake in Xugong Group Construction Machinery Co. Ltd. However, when the deal was submitted to Beijing’s Ministry of Commerce, no approval was granted creating a volatile relationship between Chinese politics and M& activity.

“A lot of this is like Kremlinology,” said David Patrick Eich, a private equity lawyer at Kirkland & Ellis in Hong Kong. “What I understand, first of all, is that construction machinery is regarded as an important industry, but that the debate over Xugong has been affected b the fact it’s leading player in that space. An attempt to acquire the third or fourth player might not draw the same scrutiny.”  

“My view is that, although imperfect and immature, these five or six challenges in the law are huge steps toward a recognizable M&A market. There’s no question that there are undercurrents of protectionism -- some expressed, and some occurring in practice -- but I don’t think that’s a dominant position. It’s a factional position.” explains Eich.

This article appeared in its entirety in the March 19, 2007 edition of The Daily Deal.