Private Equity Firms Top Five in the World

1.Carlyle Group, with US$32.5 billion

2.Kohlberg Kravis Roberts, with US$31.1 billion

3.Goldman Sachs Principal Investment Area, with US$31 billion

4.Blackstone Group, with US$28.36 billion

5.TPG Capital(formally known as Texas Pacific Group), with US$23.5 billion

(Notes: the afordsaid rankings come from an recent report in the South China Morning Post of 17 March 2008)

Private Equity Firms Hot in Hong Kong Today, Focusing on Greater China Investments

1. Baring Private Equity Asia

The Baring Private Equity Asia has recently been reported in the South China Morning Post on 11 of March 2008(Reuters) that it stuck a deal to invest US88 million in China CBM Investment Holdings(CCBM), a Mainland China's producer of coalbed methane. Chengwei Ventures is also an investor in the deal.

CCBM was formed from a management buyout of Asian American Gas, one of the first foreign companies to engage in the exploration, development and production of coalbed methane.

2. Rocket Capital Investment

The firm was established by the mainland basketball star Yao Ming's finder of Leslie Alexander, to cash in on his new mainland business connections. Mr. Alexander is its sole investor, and Forbes magazine estimates his worth at US$1.5 billion.

In 2007, the firm poured US$200 million into some of Hong Kong's biggest IPOs. In 2008, the firm is planning to invest another US$200 million to focus instead on buying listed shares and making other types of investments, but will be more careful this year, according to its managing director of Kenneth Huang.

Rocket Capital's investment are in Great China, focusing on the concessions and management of sports facilities, travel and leisure, which includes railways, airlines and the vehicle sector; and entertainment, such as sports televisions and other media, but avoids companies that it feels mistreats animals, based on Mr. Alexander's love for animals and support for the Humane Society. He once declined to invest in a national hot pot chain before it went public, for he prefers his lambs alive.

3. Harvest Capital Partners

Harvest Capital Partners was formed in May 2006 by the Chinese state-owned conglomerate China Resources Holdings, to launch or run two overseas private equity real estate funds, including one focused on Middle East cash, with combined sized of about US$1 billion, encompassing the Greater China market, including Hong Kong and Marcau.

It has invested in seven projects in Beijing, Chongqing, Guiyang and Hong Kong, involving 70 per cent of the raised fund. It will announce more deals in Tianjin and Wuhan shortly. Among the projects, only one is related to China Resources Holdings, subject to its good returns to the funds.

4. TPG Capital(formally known as Texas Pacific Group)

As one of the world's largest private equity firms from the United States, the buyout specialist TPG Capital is sharpening its focus on strategic mainland Chinese industries amid the economic slowdown in other markets around the world.

Ms. Mary Ma Xuezheng, managing director in Hong Kong for TPG, who jointed the firm six months ago(or in May 2007) after her retirement from computer giant Lenovo Group as chief financial officer, said that some of the most attractive mainland sectors for TPG include financial services, retail, technology and resources. There are also new opportunities related to the environment, including in terms of clean energy and environmental protection.

"All the parters in TPG are very focused on China", Ms. Ma said.

TPG is currently holding controlling interests in Shenzhen Development Bank and private lender Minsheng Bank. TPG is also among those seeking Morgan Stanley's stake in the investment bank of China International Capital Corp.

The Days of Limited Enforcement and Few Labour Regulations in China Are Over ! Don't Blame Labour Contract Law for Rising Costs, A Top Official Says !

Starting from 1 January 2008, the Chinese Labour Contract Law has come into effects and becomes legally binding on all the enterprises and employees in mainland China, including the PRC based foreign investment enterprises or the so-called products processing enterprises familiar to most of the Hong Kong businessmen. The new labour contract law intends to protect both parties of employers and employees, but is negatively commented by the employers for it seemingly protects employees' interests, leaving employers with higher costs and liabilitiesby, widely welcomed by the employees for limits placed on overtime work, doubling the monthly pay of a worker if the employer fails to enter into a contract with the employees.

The Chinese central government official may tell one side of the new Labour Contract Law. The Chinese Vice Minister of Labour Sun Baoshu said recently that manufacturers were wrong to blame the new Chinese labour contract law for the rising cost of production. Mr. Sun also rejected calls to amend the legislation, because the manufacturers had violated the legal rights of their workers(i.e. while maximising profits by cutting costs, the companies had exploited workers)for years and misunderstood the law.

The Hong Kong manufacturers or its national people's congress representatives may tell another side of the new Labour Contract Law. The labour contract law may lead to lay-offfs and shutdowns of more than 10,000 mostly Hong Kong owned factories in the Pearl River Delta, those factories are also facing increasingly stronger yuan, soaring raw materials and production costs, higher corporat income tax as well as unfavourable state policies on exports and tax refunds.

The Employment Promotion Law , which also came into effect on 1 Janury 2008, specifically prohibits employment discrimination on the basis of ethnicity, race, sex and religion.

The new law on the Mediation and Arbitration of Employment Disputes is scheduled to take effect on 1 May 2008, which will surely worsen the rising factory floor tensions. The arbitration bill was open to abuse as workers would be allowed to file claims or complaints against their bosses for free, which would lead to more disputes. The arbitration will make it easier for the employees to bring a legal action against their employer by extending the time for the employees to bring a claim, reducing the cost of certain actions, and limiting the right of the employer to appeal.

The foreign investment companies in China therefore shall actively consider taking or studying immediate steps to bring their human rsources practices into compliance. This would include, for example:

1. Company Rules

Companies need to ensure that their policies(including codes of ethics, anti-harassment, and discrimination policies)go throught the new, statutory "consultation" procedures.

2. The Employment Contract Law may prevail over existing company policies, so any rules that have not gone through this statutory procedure might not be enforceable.

3. Employment Contracts

An increasing number of employees will be entitled to "open terms"(or permanent) employment contracts. Since contracts can not be terminated at will, companies must revisit their hiring practices and possibly find ways to limit the number of long-term employees.


Also, most companies will need to strengthen their human resources systems to increase their ability to terminate employees within the framework of law, if necessary. And outside consultations to employment lawyers or labour specialists shall frequenty/at intervals be made, as the saying goes: one needle saves nine.

4. Staffing Agencies

Companies should stop using staffing agencies for employees who are not "temporary, auxiliary, and substitute" personnel. Such employees could be considered de facto employees. Such de facto employees could be entitled to double wages and a permanent employment contract.

(Notes: the aforesaid contents assemble from several recent reports, especially the one written by Andreas Lauffs and Joseph Deng from Baker & McKenzieon as shown in the South China Morning Post of 10 March 2008, with Jason's amendments or adjustments or comments)

There Are 6 Government-backed Private Equity Funds in Mainland China Today, with 4 More State PE Funds Pending Approvals

Private equity funds are popular in the United States and other western countries or regions for a decade। China is catching up with the trends too. Since late 2006, China has established 6 government-backed private equity funds, and China is actively considering approving 4 more state-funded private equity firms. We list blow the current existing 6 state PE firms as follows with some notes:

Bohai Industrial Investment Fund(the first yuan-denominated private equity fund was created in China in late 2006, focusing on domestic buyout deals)

Shanghai Financial Industrial Investment Fund(one of the five yuan funds approved in 2007)

Shanxi Coal Energy Industrial Fund(one of the five yuan funds approved in 2007)

Guangdong Nuclear Power Industrial Investment Fund(one of the five yuan funds approved in 2007)

Sichuan Mianyang High-Technology Industrial Fund(one of the five yuan funds approved in 2007)

China-Singapore Hi-tech Industrial Investment Fund(one of the five yuan funds approved in 2007)

The State Council is pending approval to four new government-backed private equity funds to enhance the country's industrial sector of water treatment, shipbuilding, equipment manufacturing and urban infrastructure। Huayu Water Industry Funds is one of them to raise 30 billion yuan to finance water treatment projects in the major western cities of Chengdu and Xian.

Notes:
(1)the five yuan funds approved in 2007 are worth a combined 56 billion yuan.
(2)the government-backed funds have their own edge because they are more resourceful in their home market, therefore, those state funds are a challenge to the big-name global private equity firms.
(3)since the five yuan funds all have a geographical focus, however, Beijing may also have reasons to worry about regional bias. The central government is worried that governments at lower levels would interfere in the running of the funds, which are intended to be profit-driven.
(4)top officials are worried as well that cash-rich funds would not do well under government directives.

Hollywood Studios Settle Suit in Mainland China Over Films for Internet Cafes

Five Hollywood studios have reached a settlement with a Mainland Chinese internet company accused of providing cyber-cafes with illegal copies of their movies.

Walt Disney Pictures, 20th Century Fox, Columbia Pictures, Universal Pictures and Paramount Pictures sued Beijing Jeboo Interactive Science & Technology in Shanghai in September and December last year for supplying internet cafes with software that allowed users to download and watch illegal copies of 20 Hollywood movies।
The Motion Picture Association of American said Jeboo had paid “significant” compensation.

(notes: the aforesaid report is made in the South China Morning Post of 7 March 2008 with minor adjustments)

Jason's Comments:

1।The said lawsuit was originally filed with and tried by the Shanghai court, rather than by the Beijing court where the defendant Beijing company is located, is for the Chinese civil procedural law requirement that a tort case shall be dealt with either by the court where the infringement occurs or by the court where its “consequence” occurs, subject to choice of the plaintiff. The Hollywood Studios sued the Beijing company in Shanghai is for such Chinese civil law provision and they chose Shanghai court for lawsuits, probably they believe that it may satisfy their best interests or they might feel more appropriate.

2.Civil settlement inside or outside court is generally indeed an appropriate method and practical solution for all litigation parties, on the preconditions that (1)it is relatively easier to distinguish which party may lose a case to great extents, for lawyers of both parties may objectively come to the conclusions by law and by their rich experience; (2)a case may last year(s)-long; (3)reasonable or acceptable compensations may practically be offered by the defendant(s) for whatever reasons; in additions, (4)most of the Chinese judges prefer to settle their cases via mediation, and the chief judge may insist on or repeat his stance in the regard, for sakes of an earlier closing of a case, legal requirements, etc. In fact, most of the Chinese civil cases are settled in court or outside court via mediation, and the current Hollywood studios tort case is just another updated example.

China Needs To Establish Small Claims Tribunal

The Mainland China could turn to Hong Kong’s Small Claims Tribunal as a model for dealing with small economic disputes, a Bank of Communications director said yesterday.

Most of the mainland’s economic disputes involved less than 5,000 YUAN(HK$5,485), new Chinese People’s Political Consultative Conference delegate Jiang Chaoliang said.

“These cases add immense pressure to already deeply strained judicial resources, resulting in disproportionately high litigation cost, sometimes even higher than the disputed amount,” Mr. Jiang said in his proposal to the conference.

He said that without cheaper and simpler litigation processes to settle these small claims, the cases would “increase unnecessary expenses for litigants and society”.

The concentration of these cases in large and medium-sized cities also created a high court backlog and failed to lead to timely resolution.

This, he said, could threaten the building of State President Hu Jintao’s vision for a “harmonious society”.

Mr. Jiang said the mainland could turn to overseas experience and Hong Kong’s.

He applauded Hong Kong’s 30-year-old Small Claims Tribunal. The system had flexible, mediation procedure, lawyers were not allowed, and the tribunals dealt with cases such as bank debt, damaged goods and service-fee disputes.

“This organization contributes greatly to social fairness and raising people’s legal awareness to fight for their rights,” Mr. Jiang said.

He suggested the mainland adopt a similar system and greatly reduce costs by barring lawyers from cases and hearing cases behind closed doors.

Issues such as bank-card debt recovery, public service fees and mobile phone charges could be handled.

Jason’s Comments:

China is holding in Beijing its more-than-a-week-long annual National People’s Congress and the Chinese People’s Political Consultative Conference, and many delegates raise different proposals. The aforesaid is one of such proposals as reported in the South China Morning Post of 5 March 2008.

China does not have Small Claims Tribunals, even though it has “Branch Courts” system. By my more than 10 years of Chinese legal practice and the Chinese actual state situation with a vast population of more than 1.3 billions, most of them are grassroots residing in the countryside or poor areas of cities, and their litigations are more concerning about minor amounts of money or “minor arguments” with respect to their daily life, the proposal being currently issued by a banker delegate rather than by a legal delegate is a little bit surprising, but very practical. The Chinese state legislative body should actively consider such a positive proposal and manage to establish Small Claims Tribunal system in the shortest possible time.

Critical Issues for the Overseas Investors in Mainland China Today

1.At present, human capital has become a critical issue for many businesses in the mainland and executives based there are learning the hard way the amount of time that must be dedicated to human resources related issues

(The aforesaid remarks are said to be reflected in the newly released mere title of “The Little Red Book of China Business” by Sheila Melvin who spent seven years at the United States-China Business Council advising executives on politics, economics and the practicalities of doing business in 2008

2. China ranks 53rd out of 68 jurisdictions on the Fraser Institute’s Policy Potential Index of attractive investment destinations. The low ranking is partly due to paranoia. Almost 75 per cent of mining companies cited restricted access to geological data as a deterrent to investment.

The big problems, according to the report’s author, Fred McMahon, are mainland shortcomings on the rule of law. “Different departments or levels of government try to impose conflicting regulations, making life impossible,” he notes. And even where central government do not forbid foreign investment, local government paranoia and hostility combined with ambiguous and inconsistent regulations act as an effective deterrent.

The aforesaid contents are reflected in the South China Morning Post of 3 March 2008