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Why Dow Chemical Wins, Caterpillar Loses on China’s State Asset Selloff

BEIJING (TheStreet) -- A new phase for China's asset cash-out is under way with big implications for the country's economy and China Inc.'s American competitors.

One way to play the Chinese government's decision on Tuesday to sell stakes in six state-run conglomerates, on top of the Sinopec (SHI) and China Telecom (CHA) assets that have been on the block since earlier this year, is to invest in rivals with Asian footholds such as Dow Chemical (DOW - Get Report) and Kraft Foods (KRFT).

The government very well could fail to find private buyers willing to sink money into conglomerate subsidiaries such as liquid-crystal display chemical maker Valiant, whose competitors include Dow's electronics supplier unit, and packaged-food divisions of the conglomerate Cofco Corp., whose goods share Chinese supermarket shelves with Kraft products.

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State companies no one else wants because of outdated factories or changing consumer tastes could be closed. That's what happened during the 1990s when old steelmakers shut down across northeast China, to the delight of their South Korean rivals.

Sinopec's current situation highlights the possibility of failure for assets offered through project: The petrochemical giant has yet to announce an outside investor for a chain of 30,351 gas stations on offer since February. China Telecom started seeking Internet-related business investors in May.

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