That Communist China is taking a stake in a US-based private equity firm and earmarking $200 billion of reserves for similar investments would appear to be a massive leap, both politically and economically.

However, from China’s point of view this is simply a wise diversification of just a sixth of its reserves. It is a cannier alternative to investing in its own market, which has been showing signs of boiling over for some time.

By taking stakes of less than 10 per cent in target US companies, it avoids Federal scrutiny, which knocked down its bid for the oil firm Unocal two years ago. By buying part of a private equity firm rather than the sort of infrastructure assets these firms are chasing, it avoids bidding up the prices.

It is a coup for Blackstone, which will be capitalised on the relationship, giving it a lucrative ringside seat at the restructuring of Chinese industry.

Read the full Note here

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