“If Mao Zedong and Richard Nixon came back from the dead, they wouldn’t recognize their respective capitals because one has become very capitalist, and the other has become less capitalist.”

But then Rubenstein said something more telling, after arguing that China considers private equity firms to be experts in making companies more efficient and more productive:

“I don’t think they think that what we do is ‘financial engineering’… Remember, in most deals, virtually all deals in China are done with no leverage. ‘Financial engineering’ is a phrase that’s come into disuse in the United States or disfavor; yet people say I want to grow up and be a chemical engineer, a mechanical engineer, a structural engineer; people say, great, we’d love you to do that. You say I want to be a financial engineer, people say well that’s terrible. But financial engineering, therefore, is just not as respected – whatever financial engineering is – but in China they don’t really look at it as something that’s a financial thing, they look at it as you’re helping managers and workers figure how to make companies more productive.”

Ding, ding, ding. Rubenstein hit the nail on the head, perhaps without realizing it. One reason Chinese officials are more amenable to private equity than are their U.S. counterparts is precisely because deals in China typically don’t use leverage.

“Financial engineering” is not some phony phrase created to make private equity look bad. It’s used to describe the ways PE firms turn profit outside of the differential between purchase and sale price (using lots of leverage, dividend recaps, deal fees, etc.). In China, there usually is no such differential. Were Carlyle and other firms to make their U.S. deals – or European deals — look more like their China deals, they’d get a lot less legislative and public relations blow-back. Conversely, don’t expect a warm welcome in Beijing once private equity figures out how to regularly replicate the traditional LBO model over there…