Last Sunday, Beijing took another step in diversifying its mammoth US$1.2 trillion (that’s 1,200,000,000,000) foreign reserve by purchasing a US$3 billion stake in US private equity giant the Blackstone Group.
China, saddled with a problem most nations would kill for, has way too much money on its hands, most of which, 70 percent plus by some estimates, is sitting in dollar denominated fixed income asset, earning a paltry 4.5 percent annual interest while suffering some serious currency devaluation as of late. None too pleased with the situation, Premier Wen Jiabao has ordered the State Council and the People’s Bank of China to find ways to improve return on China’s massive cash hoard and diversify away from the sagging greenback.
Rumors of a US$200-300 billion dollar state backed hedge fund surfaced last month, easily the largest the world has ever seen, and now a US$3 billion stake in a private equity giant. Founded by Steve Schwarzman and Pete Peterson, the Blackstone Group, along with its peers, has taken the global financial market by storm as of late, snapping up companies large and small at a record pace, and in turn generating some fat profits for its shareholders. This latest transaction will no doubt open the bubbling China market to salivating foreign private equity firms. The Blackstone Group, by the way, is just weeks away from going public, a partnership with Beijing at this juncture is just another feather in its hat, and of course a few more dollars per share tagged onto an already rich offering price.
Beijing’s venture into the private sector is not unprecedented. The Singapore government, through its investment arm, Temasek Holdings, is very active in the global financial market, buying into both public and private companies all over the world. But, that’s Singapore. Any move on China’s part is sure to raise a few eyebrows (remember CNOOC and Unocal?). For its part, China on Monday reassured the world community that it is only trying to improve returns and has no interest in taking control of foreign entities. Now, Beijing just has to sell that message to Charles Schumer.