China’s reserves

China’s reserves

Published: May 18 2007 13:01 | Last updated: May 18 2007 13:01

It is fair to assume that any fund management group worth its salt will have tilted its hat at Beijing. After all, China recently said it is to decant some of its $1,200bn foreign reserves into a more aggressively invested vehicle. That fund should be up and running by the end of the year with an initial kitty of $200bn-plus. It emerged on Friday that Blackstone, the US private equity firm, had already won a $3bn allocation.

Since the stated aim is to improve returns, it is not surprising that racier asset classes are being considered. Moreover, there is a precedent in Asia for investing public money with financial sponsors: the Korean national pension fund, for example, has handed modest parcels of cash to the buy-out fraternity. And anyone still goggle-eyed at the thought of the world’s biggest communist nation making a pact with the world’s most ruthless capitalists should bear in mind that Mao’s little red books are already history. In today’s China, the number of stock market accounts exceeds the number of paid-up Communist party members.

Besides, plans to diversify reserves are all the rage in Asia. Singapore’s government investment fund was launched in 1981 with a few billion dollars; today it presides over a portfolio worth more than $100bn with a diverse (but undisclosed) asset allocation. Singapore’s timing may have been better: China’s move comes as bubbles hover across the investment horizon. Beijing is still selecting fund managers, although it is a fair bet that other international houses will be included in the line-up. Still, the news that a powerful US firm such as Blackstone will be entrusted with some of China’s billions should break the ice when China and America’s “strategic economic dialogue” kicks off next week. It should also detract from too much whining about the miserly interest rate rise and token renminbi move offered on Friday.