Beijing puts its money on Blackstone

Kai Ryssdal and Scott Tong May 21, 2007

Beijing puts its money on Blackstone

Kai Ryssdal and Scott Tong May 21, 2007


KAI RYSSDAL: This might sound kinda silly, but bear with me for a second. Imagine having a trillion dollars in the bank. Y’know, give or take. And then realizing that just letting it sit there isn’t really much of an investing strategy.

It’s a lesson the Chinese government finally seems to have learned. Beijing’s holding about $1.2 trillion in foreign reserves. It announced a month or so ago it’s going to start letting that money go to work for it. And today, we learned exactly how: By buying into the high-powered U.S. private equity firm Blackstone.

Scott Tong’s covering the story for us from Shanghai. Hi, Scott.

SCOTT TONG: Kai, how are you?

RYSSDAL: I’m all right. Listen, we’ve talked before on the program before about China and it’s $1.2 trillion worth of reserves. Why are they investing part of this money in Blackstone?

TONG: Well as you know, China needs to diversify out of having all its money in U.S. Treasury securities — the boring, low-risk, low-return stuff. And the thought is, first of all, that Blackstone is a group of people who know what they’re doing. So as one investment professional told me today, they’re paying tuition to learn from some of the best traders in the world.

RYSSDAL: OK, so they’ve chosen Blackstone. Why this moment in time?

TONG: Well, there is a chunk of Blackstone that’s for sale now. Blackstone is about to go public, and so they’re putting some of their company up for sale. And so it was available for China. And the other reason is we’ve been waiting for months to hear some of the details of the state-owned organization that China has created to diversify where China puts its money. So it has been in the works for quite some time, and here we have kind of the first inkling of where they’re gonna put some of this money. Now $3 billion, it sounds like a lot of money. But as you said, there are more than a trillion dollars in foreign reserves here.

So $3 billion is kind of the rounding error here, right. And China-watchers describe China’s economy and how leaders kind of steer the economy as crossing a river — feeling for one stone at a time. And if one stone is kind of wobbly, they’ll kind of pull back. In other words, they’ll go very slowly. And that’s the idea here.

RYSSDAL: Scott, there is this Chinese trade delegation in Washington this week, they’re gonna meet with Treasury Secretary Paulson. This deal will probably come up in the course of conversation, don’t you think?

TONG: Well, this is a significant deal, so there will be talk about this. And the sense is, this is a chance for China to say, “We’re taking some of these massive foreign currency reserves and we’re investing it in an American company.” And this comes at a time when a lot of American policymakers are worried that Beijing is gonna take a lot of its dollar-denominated assets — its investments in American securities — and just dump those, and create a lot of instability for the dollar in the United States. And this helps Beijing create the appearance that, “No, we’re not doing that. We’re actually investing in America.”

RYSSDAL: Scott, do you think this deal plays into the trade gap between the two countries, the revaluing of the Chinese currency and sort of the larger dialogue that Treasury Secretary Paulson’s trying to have here?

TONG: Treasury Secretary Paulson came to China a few months back for the first round of these talks, and he kept saying that China needs to move into the modern global financial system. And this is a way for Chinese leaders to say, “Hey, this is what we’re doing. We’re starting to diversify where we’re putting our money and we’re casting some of our lot with very sophisticated investors in the United States.” And this is a step that China’s taking into this modern global financial system.

RYSSDAL: Marketplace’s Scott Tong in Shanghai. Thank you, Scott.

TONG: All right. Thanks, Kai.

There’s a lot happening in the world.  Through it all, Marketplace is here for you. 

You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible. 

Your donation today powers the independent journalism that you rely on. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.