Monday, November 4, 2013

Carlyle Goes to China, Again

FT reported on an event that occurred two weeks ago:

Chinese President Xi Jinping was almost effusive as he welcomed an all-star group of global capitalists.

“Many of you are renowned entrepreneurs and business leaders in the world today and you all have profound insight into the global economy,” Mr Xi told the likes of Mike Duke, Walmart CEO, Indra Nooyi, the head of PepsiCo, Muhtar Kent, Coca-Cola chairman, David Rubenstein, Carlyle Group founder, and Maurice “Hank” Greenberg, the former AIG boss. “Your suggestions are a very important source of inspiration for the Chinese government.”
A number of Chinese companies have an abysmal quality record and carry two sets of quality records, one for western buyers and the other for Chinese.  The FT article highlighted President Xi's investigation into western firms for bribes and bad behavior.  They surmise the move to be political, but it could also shore up the market position of Chinese firms.  

By pursuing foreign companies the authorities are sending a message to entire industries that they intend to clean things up in order to provide quality products at reasonable prices in industries about which the public is concerned.

By forcing multinationals to lower prices and improve their offerings they are hoping to raise the bar for domestic competitors as well as provide concrete examples to the masses of how their lives are improving under the new administration.
Two weeks ago Carlyle's David Rubenstein was silent on the prospect of U.S. government default.   Shortly thereafter, The Economist noted the new world of PEU sponsored capitalism, the one that turns private equity underwriters into nonprofits. I refer to this as peu-palism.

Rubenstein once said this about China:

However, the Chinese have been reasonably open to people like us. But we had to have a Chinese face on us. Every one of our professionals is a Chinese native. I feel we are welcome there. And many of the government officials there are relatively easy to meet -- in fact easier to meet than probably in any other country in the world.

An ex-Bloomberg reporter provided PEUReport with this comment on Chinese leaders and private equity:

I can't tell if the PE guys are being insincere when they talk about China or they are actually stupid. There is no way that the Chinese govt would let American firms come in and strip cashout of Chinese companies the way they've been allowed to in the US! I imagine the Chinese welcome the PE guys because they see it as another way (through PE orchestrated mergers) to get hold of more American technology and companies and jobs.
Carlyle loves both the U.S. and China.  PEU boys pit world governments against one another in their race to the bottom on taxes, worker pay/benefits and regulation.  There's little sign of this trend abating.