Wednesday, July 30, 2008

Xugong Stays in Chinese Hands

In a face-saving joint announcement, Chinese state-owned enterprise Xuzhou Construction Machinery Corporation (Xugong) and US private equity company the Carlyle Group declared on July 22 that Carlyle would no longer pursue equity in the Chinese giant.

The reason given was the expiry of agreements between the two companies which date back to October 2005. At that time, Carlyle intended spending $375 million to buy an 85% stake in Xugong. The deal was immediately denounced by Chinese Marxist-Leninists on sites like the now banned . (I reported on Marxist-Leninist opposition to the Xugong buyout in December 2006 here).

Senior Chinese government figures also saw the need to protect major state enterprises. Li Deshui, former director of the National Bureau of Statistics was applauded widely for saying in early 2006 that China must introduce laws to protect domestic industries from foreign monopolistic domination. His views were endorsed on the China Resurgent Forum website in March where one commentator observed that “the former imperialists are invading China’s economy again.”

Zhang Guobao, vice-Chairman of the National Development and Reform Commission warned on August 28, 2006: “If we casually let multinational companies swallow critical (equipment-making) companies built up over many years, we will lose our equipment-making industry. We could even lose control over the development of our whole industrial and defense system, and over our technological progress.”

Zhang was not being anti-privatisation or anti-restorationist in his views. Contradictions amongst restorationists include those between an emerging national bourgeoisie and an emerging comprador bourgeoisie. The growth of the latter is facilitated by the setting of targets for leaders at all levels in attracting foreign direct investment (FDI). The higher the amount of FDI attracted, the greater is the chance of promotion within the system, a point noted by Yu Yongding, Director and Senior Fellow of the Institute of World Economics and Politics of the Chinese Academy of Social Sciences, in a paper prepared for an international conference on Global Imbalances, Organized by IIE in Washington on 8 February 2007. Hence Zhang’s complaint that “Reform of State-owned enterprises isn’t about just selling them to foreign companies or private companies. Some local governments treat selling company stakes to foreign companies as the main route of reform…Some even go to the extent to sell such stakes only to foreign companies” (Source Shenzhen Daily, 24/10/2006).

So strong was Chinese opposition to the proposed buyout of Xugong that in August 2006, the government announced that overseas investors would need Ministry of Commerce clearance to buy controlling stakes in key industries. Carlyle then revised its bid, opting for a 50% grab which won approval from the Congress of Employees and the local Xuzhou government. However, approval from the higher authorities was still not forthcoming, and a third bid in March 2007 for a 45% stake was made and also subjected to delays in approval.

No doubt the regulatory approval delays were a political response not just to opposition from Chinese Marxist-Leninists and the masses, but also to developments in the US where, on the one hand, there was aggressive support for acquisition of Chinese assets and on the other, a rising tide of anti-Chinese protectionism. On the one hand, for example, Frank Lavin, the US under secretary of commerce, commented on the drawn-out negotiations between Xugong and Carylye that “The controversy shouldn’t be Carlyle-Xugong. I think China needs 100 Carlyle Groups to come in and buy 100 Xugongs.” Fine, but on the other hand the US was busy blocking the Chinese state-owned oil industry corporation CNOOC from acquiring US oil company Unocal. Then on March 30 2007, the US Commerce Department decided to levy new duties on imports from China, “reversing more than two decades of practices”. Nothing like a lesson in hypocrisy from the master imperialists!

Nor was Xugong embroiled only with Carlyle. Back in 1994 it had entered a joint venture with the US Caterpillar Company. Xugong was the minor partner with a 40% stake and was prevented, under the terms of the joint venture agreement, from manufacturing excavators in competition with the joint venture. Caterpillar was required to share advanced technology with Xugong as a reciprocal measure.

Over time, Xugong’s stake in the joint venture had dwindled to 15.87%. Shut out of a growing domestic market for excavators and not receiving much in the way of dividends or access to Caterpillar’s technology, Xugong decided last June to pull out of the joint venture and immediately begin production of its own excavators.

Xugong’s withdrawal from the Caterpillar joint venture and the July decision to terminate discussions with Carlyle on their buyout of Xugong are significant enough indicators for observers to talk of “Growing Resistance to Foreign Ownership in China” as one headline, in the website put it. The same website noted: “When it comes to foreign takeovers – particularly in countries working toward a capitalistic system where the implementation of macro-economic programs and structural reforms are specifically designed to attract capital inflows – the fact is, the system is often confronted with economic patriotism where the government must find a balance between national interests and commercial interests.”

Left out of this rather neat equation between “national (bourgeois) interests” and “commercial (comprador) interests” are the interests of the working class and the peasant masses.

Chinese Marxist-Leninists have the task of articulating those interests and creating a resurgent communist movement to advance the cause of the proletariat and its system: socialism.

1 comment:

Anonymous said...

Carlyle is a pack of finance capital and political gangsters cashed up by the rich now circling the world like sharks to buy up assets cheap in the economic crisis.
extract from an aricle on sydney indymedia ,.the Article quoted by engdahl gives some background on carlyle .

"Real Joy to the world.! One Bush family linked Carlyle Group hedge fund 'blows
Posted March 13th, 2008 by Anonymous
Among the leading partners of the Carlyle Group in recent years have been George
H W Bush, father of President George W Bush; James Baker III, the Bush family's
attorney and fixer; and former British prime minister John Major. And as a
private fund who knows what other political gangsters?

As "big Norm" would have said ,using his own immortal words on one Bankruptcy
-'It couldn't happen to a nicer pack of bastards"
March 13 (Bloomberg) -- Carlyle Group's mortgage-bond fund, which received more
than $400 million in margin calls since March 5, said it was unable to reach an
agreement with lenders, who will ``promptly'' take over all of its remaining

Talks on a so-called standstill agreement with lenders failed, Amsterdam-listed
Carlyle Capital Corp. said in a statement last night. Through March 12, the
company has defaulted on about $16.6 billion of debt, and any remaining debt is
expected ``soon'' to go into default, according to the statement.

Treasuries extended gains as investors took the collapse of the talks as a sign
that credit market losses are deepening. The dollar's drop to a 12-year low
against the yen accelerated after the fund's announcement.

Carlyle Capital sought refinancing on its residential mortgage-backed
securities. Those negotiations failed late yesterday after a pricing service
used by some lenders reported a decrease in the value of its mortgage-back
assets, the firm said. Carlyle expects additional margin calls today of $97.5
( the private company is colloquially known as 'Pigs-are- us.")
For an outline on the shady Carlyle company and its researched Bush links
Bush family touched by subprime crisis
By F William Engdahl

'And the Blackstone Group too?
Carlyle is by no means the only elite US private capital group in serious
trouble. Blackstone Group, manager of the world's largest buyout fund, said
fourth-quarter profit plunged 89% after a "meltdown" in the credit markets and
warned that getting loans for takeovers will be difficult in 2008. Profit
declined to $88 million from $808.1 million a year earlier.
Blackstone decided to list the private equity company on the stock market in
June 2007 in a move some date as the last gasp of the huge securitization and
private equity buyout mania of the past decade.
Since June its stock has fallen 53%. More serious, it hasn't completed a
takeover of more than $2 billion in five months and is struggling to close the
$6.6 billion buyout of Dallas-based Alliance Data Systems Corp, a credit-card
processor, announced in May 2007."

Even Benanke"s desperate move, in throwing 200 billion at the market to be
exchanged for damaged goods bonds as a bailout ,in order to try and get the
market back on track was too little and a little to late to help his masters
hedge funds.

1 Carlyle fund down ,93 to go as a downward spiral feeding on itself
Blomberg above, reports Carlyle expects additional margin calls today of $97.5
million. And what will tomorrow bring?

The big parent group Carlyle group , is whistling in the dark claiming that
everything is A-OK but it's a funny thing that the couldn't run the hat around
for a bit of small change by their standards if only to protect the groups
name.But now ,no bankers in future will negotiate with extending time to pay
should any of the other same branded funds fail to meet margin calls on time.

They know that there is no spare cash on hand.

The $150 million credit line Carlyle Group extended to Carlyle Capital Corp. was
provided by the firm's executives, not investors in its private equity and
venture capital funds, the Washington firm said. The partners own about 15
percent of Carlyle Capital, or CCC.

Carlyle Capital is in talks with creditors to avert a sale of assets after some
lenders said it had defaulted on margin calls. The fund, which had $670 million
of equity in total at the end of December, used loans from 12 banks, including
Citigroup and Deutsche Bank, to buy about $22 billion of AAA-rated mortgage debt
issued by Fannie Mae and Freddie Mac.

"They're reassuring investors in their private equity business that it's not
their money that's at stake," said Philip Gisdakis, senior credit strategist at
UniCredit in Munich. "
As a private equity company, you don't want a fund with your name on it marked
'default.' "