In what I can only conclude is a global conspiracy to separate me from my sanity, there is big news from the front lines of the battle between those who control China Yuchai (NYSE:CYD) and those who control Yuchai in China. In case you're wondering what the heck that last bit means, please read my earlier piece on China Yuchai.

Seriously, you really need to read that past piece, or none of this is going to make any sense. (And even then.)

OK?

At last, it seems that there is a resolution between the feuding parties -- and oh, man, what a whopper of a resolution this is.

Simply put, the two factions (Hong Leong Asia, which controls China Yuchai, and Coomber Investments and Yuchai, which control the underlying company) have agreed to a sweeping restructuring that will dramatically alter all of the businesses involved.

A new company, currently just called Newco, will be created. China Yuchai, Coomber, and Yuchai will all transfer their ownership interests in Yuchai to Newco in exchange for shares of Newco. Although China Yuchai will maintain the right to nominate board members of Newco, China Yuchai will have no appointees to the board.

Next, China Yuchai and Coomber/Yuchai will cooperate to get Newco listed on the New York Stock Exchange. Once that happens, Coomber and Yuchai will own 37% of Newco (which will own 98.5% of Yuchai) and China Yuchai will spin out its holdings of Newco to China Yuchai shareholders on a pro rata basis.

But wait, there's more.

As part of the agreement, Yuchai has pledged to adopt better business practices -- including the usage of U.S. generally accepted accounting principles (GAAP) and compliance with Sarbanes-Oxley. What's more, Yuchai agreed to pay dividends to China Yuchai of 300 million renminbi -- about $36 million -- of which China Yuchai will likely pay about half to China Yuchai shareholders (clause 1.5c of the 6-K).

Additionally, Yuchai will make payments to China Yuchai eventually totaling $50 million. While China Yuchai is committed to spinning out its holdings of Newco, it will be allowed to hang onto Newco shares until management of China Yuchai finds a new business (or businesses) to replace Yuchai, such that China Yuchai can continue as a going concern.

Investors greeted this announcement by pushing the stock up about 44% in trading on Thursday. Assuming that this agreement goes through, the reaction is completely understandable. After all, the business that lies at the bottom of all of this -- a maker of diesel engines -- is quite attractive, and the valuation appears to be a bargain relative to the likes of Cummins (NYSE:CMI).

Getting the agreement to go through is still the tricky part, though. If this agreement isn't put into effect by the end of 2005, it will expire. What's more, the parties involved have a pretty dicey record of honoring prior agreements with each other. So although China Yuchai secured some important concessions from Coombers/Yuchai, including signed acknowledgments that China Yuchai's ownership stake is legal, this circus won't be over until the last elephant has left the tent.

For much more easily intelligible articles on China, try these other Foolish takes:

Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares). If this latest deal between Hong Leong Asia and Coombers/Yuchai falls through, he's going to lock both groups in a cage with rabid ducks and let them resolve the matter.