In its latest deal, Carlyle plans to invest $20 million in privately owned NeWorld Education Group, which runs a chain of 65 foreign-language schools.

"There is no shortage of deals or opportunities," said Wayne Tsou, head of Carlyle's growth-capital team in Asia.
"The private sector has traditionally got money to grow from themselves or their family, because they find it hard to get credit from the banks. It's a huge opportunity for private-equity firms that can bring in that needed money and also provide value," he said.

Historically, there has been relatively little private-equity activity in China because of regulatory barriers and closed corporate structures.

With a series of smaller transactions-minority stakes in private-sector companies, often in the $20 million to $50 million range-Carlyle says it has nevertheless managed to invest about $300 million of the $680 million it raised last year for its Carlyle Asia Growth Partners III fund.

Regulators this year blocked a bid by Carlyle's Asia buyout fund to take an 8% stake in Chongqing Commercial Bank Co. And Carlyle is still waiting-nearly two years after the deal was signed-for government approval to invest in Xugong Group Construction Machinery Co., even after cutting the size of the proposed stake to 45% from 85%.

Still, Carlyle executives say they see plenty of Chinese entrepreneurs actively looking for outside money and expertise to expand their businesses. Private-sector companies aren't as politically sensitive to invest in as state-owned companies, and such transactions tend to move more quickly through China's regulatory process.

"In terms of negotiating a deal, you only negotiate with one decision maker, the person who owns that business. You need to apply for the relevant governmental approvals, but as long as you abide by the regulations, the approval is just a matter of time," Mr. Tsou said.

Other China deals completed in recent months include a $27.5 million investment in Shanghai Anxin Flooring Co., a maker of solid-wood flooring founded in 1994, and one of $22 million in Honghua Co., a maker of oil-drilling equipment in Guanghan, Sichuan province.

Carlyle says it is making headway in buyouts in China, too. It raised about $1.8 billion last year for its latest Asia buyout fund and now says that fund has committed roughly 60% of its capital.

In the Xugong case, Chinese officials have said the difficulties don't represent a less-welcoming state stance to foreign investment in general. And regulators this year approved the Carlyle buyout fund taking a 49% stake in Yangzhou Chengde Steel Tube Co. for $80 million.

But there is a different set of regulatory challenges for private-equity firms once they want to sell their investments and realize a profit. Regulators frown on the offshore holding companies that private-equity firms use to make investments in China, and are encouraging companies to go public on domestic rather than international stock markets. Carlyle says it is ready to adjust to the new requirements.

"International private equity needs to change their rules of the game to fit into the framework the government is laying out," Mr. Tsou said.

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