Carlyle focuses on private Chinese firms

All three firms are privately-held Chinese companies, he told a small group of reporters on the sidelines of an investment forum in Shanghai, China's financial hub.

"We are very interested in private companies in China, which are very different from state-owned companies, from their business scope to management level," said he.

"When we invest in private companies in China, we don't ask for management control, as many of them know the businesses better than us," said He, who manages a total of $1 billion in funds in the region for Carlyle.

"What we want to do are mainly two things -- to help them to find outstanding managers and to let them expand their business to overseas markets such as the United States, where we have many sources and connections," he added.

But he also noted that Carlyle will appoint at least one director to the board of any Chinese company that it invests in to ensure a measure of influence.

He cited Chinese outdoor advertising agent Time Share Advertising & Communication Co. Late last month, Carlyle agreed to invest $20 million in the firm, part of its US$800 million Asia-wide fund.

Carlyle is now helping Time Share to attract new advertising clients from abroad, including U.S firms Microsoft Corp. (MSFT.O: Quote, Profile , Research) and Intel Corp. (INTC.O: Quote, Profile , Research), he said.

The global buyout firm is also assisting Shanghai Anxin Flooring Co., in which it invested $27.5 million in May, to sell its branded flooring products to the U.S. market, he said.

About 60-70 percent of the Asia-wide fund could be invested in China and India, and Carlyle is especially interested in growth-stage small and medium-sized private companies in China, said He.

"Our Washington headquarters are very positive about our investments in China at present and we all believe the market still has huge potential for further investment," said He.

In October, Carlyle agreed to cut the size of its proposed stake in China's top machinery maker Xugong to 50 percent from an originally planned 85 percent, amid rising domestic concern over the prospect that state assets might be sold off cheaply or jeopardise state security.

Carlyle has been awaiting regulatory approval for the Xugong deal for more than a year, which is not given yet. He declined to comment on the planned Xugong investment as he said he was not involved in the project.

But He agreed that the regulatory environment and approving process could challenge growth of private equity in China.

Carlyle has been at the forefront of China's private equity market, which is also being stalked by rivals such as Kohlberg Kravis Roberts & Co. [KKR.UL] and Warburg Pincus [WP.UL].

Private equity falls into a regulatory grey area in China, where the central bank is still drafting rules to clarify the legal status of buyout firms.

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