China buys into Wall Street

Scott Jagow May 21, 2007
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China buys into Wall Street

Scott Jagow May 21, 2007
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TEXT OF INTERVIEWSCOTT JAGOW: We keep joking about how private equity is taking over the world. Well, China wants a piece of the action. The Chinese government will sink $3 billion into the Blackstone Group. That’s one of Wall Street’s most prominent buyout firms. It’s the first time China’s invested in foreign private equity. We turn now to Trevor Houser, an economist who studies China. He’s at our Shanghai studio. Trevor, what do you make of this?

TREVOR HOUSER: China’s looking to diversify some of the $1.2 trillion in foreign exchange reserves that China holds into higher return investments. And what better way to learn how to do that than to take a stake in one of the companies in the U.S. who’s been most successful at high-return investment: Blackstone. So I see it as the Chinese paying tuition to learn a little bit about how to invest in the rest of the world.

JAGOW: Well do you think China is going to try to do more of this kind of thing?

HOUSER: They’re certainly going to try to do more, although it’s important to qualify the size and the pace of that. A lot of people get concerned whenever there’s talk about China diversifying its investments, that that means they’re going to sell their U.S. Treasury holdings and that that’s going to have an impact on the dollar. And what we’re talking about here is $3 billion out of $1.2 trillion. And for the foreign exchange reserves, you know, concern No. 1 for Beijing is stability and very few investments offer the same kind of stability right now as U.S. Treasury bonds do. As many of your listeners probably remember, the last time that Chinese investment overseas was really in the news in the U.S. was with a bid by a Chinese oil company CNOOC to acquire Unocal, California-based Unocal, which didn’t do so well. The Chinese ever since have been a little bit gun-shy and so I think most importantly about this Blackstone deal is it signifies a desire to start learning from some of the people who are most expert in this area.

JAGOW: Alright Trevor thanks so much.

HOUSER: great, thank you.

JAGOW: Trevor Houser is a visiting fellow at the Colin Powell Center for Policy Studies.

Yet another private equity buyout today: Two firms, TPG Capital and an arm of Goldman Sachs, are snatching up wireless company Alltel for $27 billion.

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