The Carlyle Group, one of the world's largest private equity firms, has announced it will spend 230 million yuan (US$27.5 million) buying shares in Shanghai Anxin Flooring Co Ltd, China's largest manufacturer and distributor of solid wood flooring.

In a statement, Carlyle said its initial investment would be US$20 million. The remainder will come in the next two years.

Company officials declined to provide further details on the size of its shareholding.

Anxin said it plans to make an initial public offering on the Hong Kong stock exchange in 2008.

"We will seek an overseas listing to tap global capital markets for future funding needs," said Lu Weiguang, Anxin's founder and chief executive officer.

Carlyle's investment will support Anxin's launch of a new brand, which features engineered and solid wood flooring products from Russia, Southeast Asia and Africa.
Engineered wood floors are less expensive and more environmentally friendly than the high-end solid wood floors, which are usually made of rare hardwood from trees of more than 60 years old.

"Overall demand for wood floors will remain strong, driven by robust real estate developments throughout China and increasing consumer spending," said Lu.

The company generated sales revenue of 700 million yuan (US$87.5 million) from solid wood floors last year.

The China wood flooring market was about 230 million square metres in volume in 2005, up from 2004's 130 million square metres. The sector has seen a 21 per cent annual growth rate over the past five years. 

The Chinese company earlier invested more than 80 million yuan (US$10 million) in two production lines with a capacity of 2 million square metres of engineered wood floors.

It will add three production lines in the next year through another investment of 200 million yuan (US$25 million).

In 2004 Anxin acquired a large natural forest in Brazil to secure long-term timber resources amid a global supply shortage, becoming the first Chinese company to own forestry resources abroad.

Currently Anxin accounts for more than 50 per cent of Brazil's timber exports to China for use in wood flooring.

Last August, Anxin acquired 40,000 square metres of land on the Sino-Russian border in Heilongjiang Province, in northeastern China, to build a wood processing plant with an investment of 100 million yuan (US$12.5 million).

The plant is scheduled to start operations next year and will be able to process 1,000 cubic metres of timber each month.

"Anxin is one of the first movers in the fast-growing engineered wood floor market, which is expected to surpass the market for solid wood flooring within five years.

"As the leader in solid wood flooring, Anxin will further solidify its leadership under the ongoing domestic market consolidation," said Wayne Tsou, managing director and head of the Carlyle Asia Growth Capital Group.

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