China Getting Restless – Stephen Schwarzman-style

The Financial Times reports “China to buy 10% stake in Blackstone while yielding voting rights

Why we think this is huge news:

Firstly, as mentioned, this is the first time Beijing has invested its foreign reserve in a commercial transaction and is described, as should be, as a “historic event that changes the paradigm in global capital flows.”

Secondly, this may the be the first of many acquisitions that will be looked at as a monumental move to diversify their U.S. Dollar holdings, signifying a sign of action after much of the talk we’ve been hearing till now.

Thirdly it shows where China is looking – Returns. Sick of a mere 5% that would yield less than $500B over the next ten years, a boost to the 10% range would increase their holdings by over $1T in the next decade. If it were the 1990 they’d be investing in Tech stocks, if it were a few years back they would be buying up real estate and today it’s Private Equity.

So what’s next? I don’t even think the Chinese themselves know, but what I do see in the cards is a range of possibilities. And if China starts buying gold the repercussions can be huge. Nothing is certain at this point but as they say “When there is smoke there may be fire.”

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2 Responses to “”

  1. David Wozney Says:

    Re: “… a monumental move to diversify their U.S. Dollar holdings, …

    A “Federal Reserve Note” is not a U.S.A. dollar. In 1973, Public Law 93-110 defined the U.S.A. dollar as consisting of 1/42.2222 fine troy ounces of gold.

  2. Admin Says:

    You are indeed right in saying that U.S. Treasuries are not U.S. Dollars, however these IOUs are nonetheless represented by the United States currency. These notes are no longer backed by the gold that they stood for before 1973.

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