Enter the Blackstone Group.
China's US$3 billion investment in Blackstone, while insignificant relative to China's US$1.3 trillion in reserve assets -- a sum headed for US$1.5 trillion by the end of this year and likely to hit US$2 trillion sometime in 2009 -- is but a toe dipped in the water, a test run. At the start of the process, China will have small and indirect ownership stakes in a great many US enterprises, and the odds are that the usual objections will be absent. China will gain a measure of risk diversification, reduce the price pressure that has kept earnings on its foreign exchange reserves low and avoid running into political trouble. Blackstone will gain extra cash to deploy and extra fees.
Some observers think that the US political backlash against foreigners "buying up America" is what will bring the current configuration of global imbalances to an end. Deals like China's investment in Blackstone postpone that backlash, but not for long: US$3 billion is equivalent to what China accumulates in reserve in less than three working days.
The question following China's Blackstone investment is this: How far can this process go? And how much control will US investors ultimately realize they have given up?
J. Bradford DeLong, professor of economics at the University of California at Berkeley, was assistant US Treasury secretary in the Clinton administration.
Copyright: Project Syndicate
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