A huge shift in global capital flows is forecast after the Chinese government’s acquisition of a $3-billion stake in the sprawling United States private equity group Blackstone, owner of Café Rouge restaurants, Madame Tussauds and Center Parcs.
The purchase, though substantial in its own right, is likely to be only the starting point of a $200-billion foray into world stock markets and private companies by the communist government in Beijing.
China has the world’s biggest foreign exchange reserves, worth $1,3-trillion and growing by $1-million a minute. Until now, most of this has been invested in safe but low-yield US treasury bonds. With the dollar slipping in value, policymakers in Beijing are diversifying into riskier but potentially higher-return private equity.
Later this year, the new state foreign exchange investment company will take on this task, led by Lou Jiwei, a former deputy finance minister. With a war chest of about 15% of China’s foreign exchange holdings, it is already being described as the biggest hedge fund in the world.
Blackstone is now well positioned to win a chunk of that money management business. Under the deal, China will take a stake of about 8% of the US firm.
Blackstone disclosed the investment as it set out details of its flotation on the New York Stock Exchange, which will raise up to $4,13-billion. The shares, to be priced at $29 to $31, will trade under the symbol BX.
China’s involvement could raise hackles in US political circles where there has been acute sensitivity about the economic role of non-Western powers since Dubai Ports World’s takeover of strategically important US ports last year.
However, Eli Talmor, head of the London Business School’s private equity institute, said China had been careful in taking a small stake in a “non-direct” vehicle that spreads its influence relatively thinly. “This is a sign that the Chinese are coming to terms with the rest of the world — they’re actually showing some restraint, some respect towards the West,” he said. “If they really wanted to exercise muscle, they could go for direct investment.” — Â