The China Development Bank has also lent money to China Security itself, including a new $200 million credit revolver, disclosed last week. The company, which immediately drew down the total amount of the revolver, has consistently burned through cash. In the fourth quarter of 2010, it had negative operating cash flow of about $100 million, SEC filings show. The cash on the company's balance sheet has dwindled to $65.6 million as of Dec. 31 from $154.5 million a year earlier.

Tu appears ready to take his leave of U.S. capital markets as soon as he can. "If the Board considers this Proposal and finds that it is worth pursuing, I am prepared to proceed immediately to arrange firm, committed financing," he assured in his letter. "I fully expect that the process of developing an acceptable proposal can be conducted expeditiously and completed within four weeks with the cooperation of the Board and the Company."

Investors bid up China Security shares Tuesday. The stock, which was trading recently at its session high of $5.30, was up nearly 30%. Volume exceeded 6 million shares, five times normal.

China Security joins a growing trend among Chinese reverse-merger companies. The founders of Harbin Electric ( HRBN) and Fushi Copperweld ( FSIN) have also announced that they intend to remove their companies from U.S. capital markets through leveraged buyouts.

So far, neither company has executed on those plans.

Then, just on Monday, China Fire and Security's ( CFSG) CEO said he wanted to take his company private. Its stock shot higher as well.

For more than a year, a wave of fraud revelations and allegations of financial wrongdoing -- mostly leveled by short sellers -- has roiled small-cap Chinese companies with stocks listed in the U.S. The controversy has sparked regulatory scrutiny. The Securities and Exchange Commission has launched a broad investigation into the Chinese reverse-merger phenomenon, while the House Financial Services Committee remains interested in scheduling hearings on the matter, according to a person familiar with the committee's doings.

-- Written by Scott Eden in New York

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