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China’s Buying Spree

Yesterday, China announced that it is investing $3 billion of its foreign exchange reserves in the Blackstone Group, a New York private equity firm. The investment gives Beijing a potentially higher return on its $1.2 trillion of reserves, which are currently invested mostly in low-yielding debt instruments.

There are few coincidences involving China, and the timing of the announcement comes at a crucial time in Sino-American relations. A large Chinese delegation arrives in Washington this week for the second round of the Strategic Economic Dialogue. It will have limited flexibility and, as I explained in an earlier post, will not be able to make many concessions to the United States. This is also a politically sensitive moment within China, on account of the 17th Communist Party Congress, which will be held later this year.

The Chinese have tried to lower the temperature before the Washington talks. They went on a buying spree of U.S. products recently—a tactic employed in the past—and on Friday they marginally loosened controls on the renminbi to defuse anger in Congress over their rigging of their currency. These maneuvers are transparent and will not help Beijing alter its well-deserved image as a trade outlaw. But the Chinese apparently think that the Blackstone investment could change the political calculus in this country—they rushed to close the deal before the talks, putting it together in just three weeks. It’s not far-fetched to see in this an attempt by Beijing to use its mountain of foreign cash to buy influence.

The investment in the Blackstone Group will not be as sensitive as China’s attempt, in 2005, to buy Unocal. Nonetheless, it may be more significant, foreshadowing a trend. As Xinhua, Beijing’s official news agency, stated earlier this year, China’s foreign-exchange reserves are sufficient to “buy Microsoft, Citibank, and Exxon Mobil Corp., as well as General Motors and Ford.” This is a good time to begin thinking about how much of corporate America should be owned by this authoritarian state.



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