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.