Carlyle-Xugong deal still being discussed-minister

BEIJING, March 12 (Reuters) - U.S. private equity firm Carlyle Group is still in talks with Xugong Group Construction Machinery Co. about how big a stake it will take in the Chinese equipment maker, Commerce Minister Bo Xilai said on Monday.

Since it was agreed in principle in October 2005, the closely watched deal has run into resistance from some officials who believe China is selling industrial assets to foreigners too cheaply.

Carlyle [CYL.UL] originally agreed to buy 85 percent of Xugong, China's biggest machinery maker, for $375 million. Last October it reduced the proposed stake to 50 percent and offered to pay more per share.

But Bo said the two firms had yet to reach final agreement.

"As for Carlyle's proposed purchase of Xugong, as far as I know the two firms are still talking on how much the equity stake will be," Bo told a news conference during the annual session of National People's Congress, China's parliament.

"Once they reach agreement on this issue, they will submit an application to the Ministry of Commerce, and we will go through the examine-and-approve procedure according to law," he said.

The State-owned Assets Supervision and Administration Commission gave its blessing to the deal in November, but the influential magazine Caijing reported this month that Bo's ministry had blocked Carlyle's revised offer.

The deal has become a litmus test of China's openness to foreign acquisitions and stake-building in domestic companies.

"We believe foreign investment through mergers is a very important and a good way for foreign firms to invest in China," Bo said. "As long as we can regulate this investment activity, I believe it has development potential here."

He noted that purchases of equity stakes account for more than 80 percent of foreign investment worldwide, but only 2.5 percent of foreign investment in China.