We’re barely into the second quarter of 2008 and already China’s total outbound investment is closing in on the full-year total for 2007. Spending currently stands at US$24.52 billion (from 56 deals), up 1,000% on this point last year, according to Thomson Financial. The full-year figure for 2007 was US$29.84 billion (from 219 deals). In 2004, outbound investment came to just US$3.92 billion.

Obviously, this year’s numbers are skewed quite horrifically by Aluminum Corporation of China’s (Chinalco) US$14.28 billion investment in mining giant Rio Tinto (made through a subsidiary with a little help from Alcoa of the US). If there is anything to these rumors about Baoshan Iron & Steel seeking a 9% stake in BHP Billiton, the numbers would be skewed even more.

Aside from the focus on metals and mining (which is unsurprising given the current macro climate), recent deals are notable for their relative smoothness and sophistication. It is all a far cry from China National Offshore Oil Corp’s unsolicited and poorly prepared bid for US oil group Unocal in 2005.

Chinalco brought Alcoa on board as it helped preempt suggestions that this was another state-driven resource grab (which, to a certain extent, it was). This is a bona fide commercial move with a bone fide commercial partner, the could say. Structurally, this is not something that was conceived overnight.

As was highlighted in our cover story in March, Industrial and Commercial Bank of China’s purchase of a 20% stake in Standard Bank of South Africa for US$5.6 billion was three years in the making.

China Investment Corp, the country’s sovereign wealth fund, paid US$5 billion for a 9.9% stake in Morgan Stanley and US$3 billion for 10% of private equity firm Blackstone. Rather than create unrest within the US political community, these investments (and the subsequent losses incurred) have provoked domestic criticism of the government’s strategy. “They’re just stupid,” a Chinese dealmaker told me last month.

For more on Chinese outbound investment - with particular reference to acquisitions in the US and how one recent deal (Huawei’s bid for 3Com in alliance with Bain Capital) did go wrong - please see this special report from our April issue.

Highlights from the last week of China business news: Paulson’s latest visit (no prizes for guessing what he talked about. Starts with an R and ends with a ‘enminbi’); state-owned steel and auto giants get leaner, but not without dieting problems.

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Apologies for the long silence, dear readers. The monthly period of chaos known as ‘production week(s)’ engulfed us recently, but we’re now ready to resume regular service and we plan not to have further disruptions.

Now we would like to bring your attention to the curious case of Richard Ong of Goldman Sachs. Ong, a Malaysian Chinese, was not allowed his promotion to head Goldman’s Beijing joint venture, Goldman Sachs Gao Hua Securities, because he failed a government mandated Chinese-language proficiency exam.

That seems odd. Ong was co-head of investment banking in Asia and headed Goldman’s Singapore office before moving to Beijing. He was clearly well-qualified, and, at the age of 42, also on a rapid ascent up the ranks. Goldman is supposed to be the world’s most profitable investment bank, and enjoys special status in China, since it’s one of only two foreign brokerages with management control over its JVs here (the other is UBS). According to the FT, many exemptions have been given in the past to foreign executives whose Chinese wasn’t up to scratch.

So what gives? Why wasn’t one of the most powerful investment banks in the world allowed to name its candidate to head an important division? Why was it instead embarrassed publicly, having its choice blocked by a technicality that showed the candidate was incompetent in the language of the host country?

Maybe it was office politics. Zha Xiangyang, the Goldman Gao Hua’s former deputy CEO, was elevated to the top job. Maybe it was, as the foreign press suggest, a case of the government enforcing its Chinese-language proficiency rules.

But can we glean a clue by examining Richard Ong’s resume? According to the FT again, Ong was “instrumental” in Singapore government investment vehicle Temasek’s purchase of ousted Thai PM Thaksin Shinawatra’s Shin Corp last year. But just how instrumental was he? The Nation, a Thai paper, noted that Richard’s brother, Charles Ong, is Temasek’s head of overseas investment strategy and “right-hand man” to Temasek chief Ho Ching. According to Goldman’s website, its Singapore office counts Temasek as a “key client”.

The Temasek-Shin Corp deal went through, but triggered a series of events that led to a military coup against Thaksin’s government and an US$820 million paper loss for Temasek at one point. Because Temasek is seen as a proxy of Singapore’s government (although ostensibly independent), with close links to the ruling People’s Action Party (Ho Ching is Prime Minister Lee Hsien Loong’s wife), the purchase of Shin Corp caused alarm in Thailand. Thais saw the deal as Singapore’s government getting too close for comfort.

China is now planning a foreign exchange investment vehicle, which it said is taking some cues from Temasek. But maybe Beijing, after noting Thaksin’s political demise and the extreme volatility that accompanied Temasek’s deal, thought it unwise to have a key Temasek adviser so close at hand in the capital? There’s been no word on Richard Ong’s next posting that we could find.

As far as my email inbox is concerned, the words “DLA Piper news flash” usually spell some impending trouble in venture capital paradise.

I’m not suggesting bad karma, just that the law firm’s updates are not a once-a-week event and, when they do come, I tend to set aside a few minutes to read them. And then re-read them. Legal terminology is not easy to digest.

The July 1 bulletin contained updates on new rules implemented by the State Administration of Foreign Exchange (SAFE) that could complicate venture capital (VC) and private equity (PE) deals in China.

Basically, the offshore special purpose vehicles (SPV) used by venture capitalists to take money in and out of China are coming under closer scrutiny. If they set up an onshore subsidiary or make any cross-border M&A deals, approval is now required from both the Ministry of Commerce and SAFE. To get this approval, the SPV must submit evidence of a three-year track record of investments. It must also disclose assorted financial information and meet shareholder structuring requirements.

Further tightening measures are expected and more foreign VC and PE deals are likely to run into trouble for not dotting all the ‘i’s and crossing the ‘t’s.

The end goal for Beijing is to encourage more emerging Chinese companies to list on domestic exchanges. It is part of the widely-reported effort to reduce liquidity and improve governance in the markets by bringing in well-run companies – Hong Kong red chips become Chinese blue chips while strong start-ups provide solid growth opportunities.

This isn’t good news for the typical foreign VC/PE fund. The domestic market is volatile, a far cry from the reliable, well-informed valuations on NASDAQ. With Chinese stocks currently overpriced and analysts struggling to predict if and when the cards will come tumbling down, what investor would want to risk an A-share exit?

And even if a fund settles for a domestic IPO, the proceeds are in renminbi, which poses further problems in terms of getting back into US dollars and out of the country. The long-term solution is to set up a renminbi-denominated fund, but that means making a commitment to China that might not suit overall strategy.

DLA Piper’s verdict is not an optimistic one: “We believe that the [new rules], together with the government’s unwritten policy to encourage onshore listings, may herald another dry period for offshore investments into China and offshore listings of PRC companies.”

Highlights from the last week of business news in China: A-share action, laws under review and the National Audit Office’s latest findings (more…)

And so it rolls on. Who would have thought that a mid-size bank teetering on the brink of insolvency could cause such a fuss?

The case of Guangdong Development Bank (GDB) is evidence of two things: a) the appetite Western banks have for establishing a significant foothold in China’s financial sector; and b) just how bad a cut of meat these bankers are willing to chase.

When it moved in for an individual 40% slice of GDB at the head of a consortium seeking 85% of the troubled lender, Citigroup was clearly hoping that GDB’s desperate need would trump the regulator’s 20% limit on foreign investment in China’s banks.

Rival bidder Société Générale cried foul play, Beijing shyed away from setting a precedent, and both groups were asked to re-submit bids.

Now what we appear to be seeing is something akin to a bottomless-pockets football game as both sides - now happy to settle for 20% of GDB as part of consortiums chasing an 80%+ stake - seek to fill their bench with the biggest and most Beijing-friendly talent.

Batting for Citigroup… China Life has been brought in as the big hitter with China Energy Investment Corp and telecom equipment maker China Potevio in support. Carlyle Group, while undoubtely a bulge bracket presence, may yet prove a poor selection if it shows its glass jaw in separate negotiations for a takeover of construction equipment manufacturer Xugong.

In the dug-out for Société Générale… Baoshan Iron and Steel and Sinopec - heavy industry stalwarts expected to produce heavyweight performances.

And to the winner… the chance to meet the tab on a bad lending legacy that stems back more than 15 years when Guangdong found itself awash with cash but had yet to impose rules on how to control it.