Carlyle's bid for China company ends

Carlyle's bid for Xugong Group was closely watched amid U.S. government warnings about possible Chinese protectionist sentiment. Beijing stepped up scrutiny of foreign acquisitions following the Carlyle bid and enacted a rule last year requiring a national security review of such deals.

Agreements under which Carlyle and Xugong discussed first a takeover and then a minority investment have expired, the companies said in a joint statement.

"Both parties have decided not to proceed with the investment and Xugong will embark independently on its restructuring," the statement said. The two companies blamed unspecified "significant changes in the market environment."

A Carlyle spokeswoman, Michelle Xu, declined to give details.

Carlyle tried to buy Xugong in 2005, offering $375 million for 85 percent of the company. Xugong said it wanted the investment in order to grow in a market dominated by U.S.-based Caterpillar Inc. and Japan's Komatsu Ltd. The government of the eastern Chinese city of Xuzhou, which owns Xugong, approved the deal.

But the bid sparked complaints about asset sales to foreigners. China is the world's leading destination for foreign investment but the takeover of existing companies is still unusual.

The outcry prompted Washington to express concern about the handling of such offers.

Carlyle reduced the stake it wanted to 50 percent in 2006 and last year cut it further to 45 percent.

Carlyle is one of the world's largest private equity funds, with $44 billion invested around the world in industries ranging from manufacturing and power generation to media and telecoms.