Asia 'exploring' approach to reserves

Asia 'exploring' approach to reserves

By Mark Schieritzin Frankfurt

Published: May 25 2007 03:00 | Last updated: May 25 2007 03:00

China's unprecedented $3bn investment in Blackstone, the US buy-out fund, is the beginning of a trend that will see Asian countries take a more "innovative" approach to investing their foreign exchange reserves, according to the vice-president of the Asian Development Bank.

Liqun Jin, a former Chinese deputy finance minister, told FT Deutschland, the FT's sister paper: "Asian countries are exploring innovative ways to invest their reserves. More diversity is welcome."

Such a new approach could provide the private equity industry with a swathe of fresh capital from Asian countries. China alone has accumulated foreign exchange reserves amounting to $1,200bn (€890bn, £603bn), most of which is invested in US bonds.

The Chinese government has said it intends to use $3bn of its reserves to buy a 9.9 per cent stake in Blackstone, coinciding with the US buy-out group's landmark $40bn stock market listing, which is expected in the next few months. Beijing's move will allow the private equity group to almost double its original target of raising $4bn.

"China has always had a conservative approach to reserve management," Mr Jin said. The priorities had traditionally been safety and liquidity. "But when the foreign exchange reserves are going up, keeping these priorities is not enough," he said. It was sufficient for the country to keep a share of its reserves liquid. "If you keep all resources in a very low yielding asset, you are losing money."

Mr Jin damped fears Asian countries were planning to take control of western companies on a large scale. "Investing in Blackstone does not mean we are buying them up. Transactions like this will create a better platform for Asian countries to work together with European and American countries." He expects China and other emerging economies to continue to accumulate foreign exchange reserves.

Copyright The Financial Times Limited 2007