Why do the Chinese Want a Blackstone Stake?

We are long since used to the sight of US companies falling over each other

to compete for the privilege of being able to invest in China. Part of this

is because they see large returns down the road, but another important part

is because they feel that having Chinese investments will bring them closer

to the all-important Chinese government.

It turns out that they were going about this entirely in the wrong way. Rather

than invest in state-owned Chinese banks, Goldman Sachs should have been persuading

the state-owned Chinese banks to invest in it!

Steve Schwarzman is the man who we can credit both for having this insight

and for having the geopolitical clout to be able to act on it: he’s selling

the Chinese a $3

billion stake in Blackstone, at a tiny 4.5% discount to the IPO

price. The Chinese are now literally invested in Blackstone’s ability to

do deals in China, which must make Schwarzman very happy indeed.

But what’s in this deal for the Chinese? As Naked

Capitalism notes, the Blackstone IPO is very controversial, and there’s

a great deal of regulatory risk surrounding the deal structure.

One can only assume that if the Chinese are taking large stakes in individual

companies like Blackstone, they’ve been investing in US equities more broadly

for some time. If they’ve reached the limit of their comfort level with public

equity, it might make sense to have some kind of exposure to private equity.

But even then, one would expect the Chinese to be investors in a Blackstone

fund, rather than investors in Blackstone itself. And in any case I’m far from

convinced that China has a big stake in the US public equity markets. It seems

that there’s something else going on here, but if there is, then Schwarzman

isn’t telling.

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