With so much going on in China, and only a limited amount of bandwidth, I have created this weekly post to highlight articles that I feel are (1) important, (2) relevant, and (3) interesting.

This week there are 3 articles that I have put into the mix, and it begins with a look at venture capital in China, and also looks at how one bloggers view on China hyped stories, and I wrapped the list up with another article on the What Ifs of a U.S. Slowdown.

Each are quite interesting, they are all relevant, and I hope you enjoy the articles

If you have an article that you feel needs to be mentioned, please do so in the comments section. We all have different areas of interest and bandwidth, so I hope you will take some time and post those articles!

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A year back, while showing around a couple analysts from a hedge fund, we ran into a group of established China based VC/ Hedge Funders playing pool. Of course, over their 3 month existence they had worked out the lay of the land and were now screaming about how the group I was showing around HAD TO BE HERE.

That only by being here could you understand the opportunities, that there were deals everywhere, that they had ACCESS to the DECISION MAKERS…

All in all, it was pretty funny, but the fact remains that they were right… you have to be here.

Last week while reading through my WSJ articles, I came across an article entitled Investors open offices or enlist local allies to raise presence in the country written by Brian Gormley, and I had to once again laugh.

There have been books written, speeches given, and website devoted to the fact that YOU HAVE TO BE HERE, and about the perils of not being here.

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a few years back while talking to a partner in the Big 4, I asked him how many of the JVs they had structured failed.

His answer… 75%

75%..

Need a moment for that to sink in? Well, 3 years ago I did.

However, after the stun wore off, I realized that of those 75%, there were a few most likely reasons why the JV would fail.
1) The parties did not get along
2) The parties did not see an economic benefit in the partnership
3) The JV was designed to fail once investment restrictions were lifted
4) One party sees more economic benefit on going out on their own

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Carlyle is by far one of the most aggressive groups in China right now. When they first “entered” China, they announced a billion a year in China…. and it took them no time to start making announcements.

Last year though, their 85% stake in Xugong Manufacturing Group (XCMG) hit a snag.. a big one.. and as we have covered on a few occasions (here, here, and here), it is one that has forced Carlyle to accept lower and lower percentages of the deal at rates much less favorable. In fact, the most recent offer of 45% is widely believe to still be too high to close on.

I am still curious as to why Carlyle is pushing so hard on this deal. Maybe it is because one of their other holdings wants to take all of XCMG’s 2007-2009 production, or maybe it is face. But to me they are risking it all on one deal, and it isn’t coming as much of a surprise when the reports from IHT, Forbes, and others have surfaced about Carlyle’s recent bid for Chongqing City Commercial bank being on the edge of failure.

The deal particulars according to the Forbes article are 7.99% for 326 million RMB (41-42M USD).. a small sum by almost any Carlyle measure, but big enough to keep the CBRC from signing off.

Given ANZ Bank has closed two deals in last 6 months, Standard Chartered has invested, and others have been successful as well, it is interesting that one of the largest funds would not be seen as fit to invest in a bank. After all, they have proven themselves at managing money and are already heavily invested in this sector.

So.. why is the central party and CBRC holding back?

It cannot be because they are not approving other investors.

For nearly 9 months now (see original post here), the Carlyle deal has been in what seemed to be a never ending holding pattern over the skies of Beijing’s regulatory bodies.

When it was initially announced that Carlyle would take 85% of XMCG, the nationalistic funny bone of China got chimed. The CEO of XMCG’s largest competitor, Sany, leveraged his blog to garner support, the regulatory bodes in Beijing balked, and the press got their headlines.

The rest as the say is history. Even though Carlyle did agree this week to reduce their share expectations once again to 45% (second offer was 50%).

However, at about the same as all this was occurring, Telstra closed a deal for 51% of Soufun.com, a Chinese real estate portal. Unlike the Carlyle deal though, this deal got the green light almost automatically.

And here are a few of the reasons why:

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