Beijing- Analysts reacted positively Monday to plans by China's soon-to-be-established State Investment Company to purchase 3 billion dollars of non-voting stock in US investment firm Blackstone Group. The proposed purchase by China's State Investment Company, announced Sunday, occurred as Blackstone began an initial public offering of 133.3 million shares at between 29 and 31 dollars a share. The New York-based firm also held open the possibility of selling up to 20 million additional shares.
Blackstone is thus expecting to earn a maximum of 4.75 billion dollars in the sale.
China some weeks ago announced that the country was looking to invest a portion of its currency reserves of 1.2 trillion dollars in lucrative investments, creating the State Investment Company to oversee these investments.
Lou Jiwei, the head of the working group of the Chinese firm, pointed out that that Blackstone was the State Investment Company's first investment.
Prior to this move, the lion's share of Chinese currency reserves were invested in US government bonds and similar investments.
Financial analysts speculated that the move by China marked a new development of the country's investment.
One Chinese analyst said "previously we looked for limited risk, such as in US bonds, but that brought also limited profit. Now we are starting investments in stock markets that mean higher risk and higher earnings."
Stephen Green, chief economist of the Standard Chartered Bank in Shanghai, speculated that China's move was "about learning how you do private equity, investing in this firm gives them access to learning how they go about it."
"You might also think that politically they think that direct investments into corporate America comes with two many risks, so they partner with an American firm so (that firm) can provide them with some cover," Green added.
Another expert familiar with the deal emphasized the benefits to both sides, saying it "was a very important first step of broadening the capital flows between China and the US and recycling China's foreign reserve exchange back into the US."
As for Blackstone, he said that as China was a large market, "to have a state investment company as a significant equity owner in the firm will help position them well in China and the region."
