The Chinese government has just issued new regulations so as to enhance supervision over state-owned assets transactions.

Most state asset deals should be made in the property right exchange, with over-the-counter transactions being strictly controlled, said a circular issued by the State-Assets Supervision and Administration Commission and the Ministry of Finance.

"The sale of state-owned assets should not violate the restrictive or prohibitive rules concerning the country's economic safety," the circular said.

The state should retain its absolute control over companies in key industries after part of state-owned property right is sold, it said.

The transaction concerning transfer of state assets to a foreign company should take place in the property right exchange, requiring approval from relevant governmental departments, according to the circular.

The circular came amid rising public concerns that foreign control of key Chinese firms could threaten the country's economic security.

Carlyle Group, a private equity firm from the United States, originally offered US$370 million for a 80 percent stake in Xugong, a leading Chinese construction machinery manufacturer.

The deal was submitted to the Ministry of Commerce for approval, but was turned down.

The parties signed a new deal then, in which Carlyle reduces its stake to 50 percent, at a cost of 1.8 billion yuan, or US$225 million roughly.

The Carlyle controversy is drawing attention to other "questionable" deals, such as the proposed takeover of the Luoyang Bearing Corporation, a leading bearing producer in China, by German-based Schaeffler Group.

(Xinhua News Agency January 30, 2007)