China: 'The Best Place to Invest in the Next Five to 10 Years'

Rubenstein: China is trying to do in five, 10, 15 years what a normal economy does in 50 or 60 years, which is to build an infrastructure, housing, commercial office space for a very large population. So there is an enormous amount of opportunity for real estate and there is enormous need. I don't think China is in a real estate bubble. There may be fluctuations from time to time. You have 1.3 billion people and some of them live in urban areas. China has 170 cities with more than one million people -- very large urban areas. They need infrastructure, roads, bridges, airports, office buildings. There is so much demand. I don't think there is a bubble that's bursting anytime soon.

China Knowledge@Wharton: How are you structured in China?

Rubenstein: Carlyle has three funds operating in China: a real estate fund, a buyout fund and a growth-capital fund. Each has separate teams and all of them are headed by people who are PRC natives. They operate offices in Shanghai, Beijing and Hong Kong. Many investments now we think are very attractive. We recognize that some industries are more attractive than others, but you can't be that picky because there are so many opportunities coming along and there is increasingly more competition. We got in early, but now everybody is coming to China. Still, it is a great place to invest because it is growing at such a large rate .

China Knowledge@Wharton: Talk about the issue of control of Chinese companies, of how difficult it is for private equity to gain a majority of shares or seats on a board.

Rubenstein: In the growth-capital businesses, Chinese entrepreneurs are happy to take capital from other people. They want to retain control but they are happy to give a board seat or some representation. I don't think anybody in China is against having minority stakes owned by foreigners or outside investors. I think there is a concern in China about letting large [state-owned enterprises] or publicly traded companies be under control of foreigners. I think China recognizes that in order to attract capital, it has to adapt to international standards. On the other hand, I think foreign capital is willing to adapt to Chinese standards as well.

Two exchange-traded funds (ETFs) that track the performance of many China-based companies are the iShares FTSE/Xinhua China 25 Index (FXI Quote) and the PowerShares Golden Dragon Halter USX China (PGJ Quote).