China's Blackstone deal just hint of things to come

By Herbert Lash

NEW YORK (Reuters) - China's symbolically powerful move to take a $3 billion stake in prominent U.S. private equity firm, Blackstone Group LP, has China watchers wondering which American companies are next on Beijing's shopping list.

Is it too far-fetched to think stakes in companies as diverse as General Electric Co(GE.N), Google Inc(GOOG.O) or Goldman Sachs Group (GS.N) could be of interest to China?

After all those three alone would give the Chinese access to infrastructure, technology and investment banking growth and prowess.

Blackstone co-founder Stephen Schwarzman is among those who expects to see the Chinese to put large amounts of money into liquid securities.

"Blackstone is the first, but over time I would suspect there would be others," he said in a phone interview.

"To the extent that the state investment company stays below the 10 percent threshold for governmental review...and invests in securities that are liquid, which this security eventually will be, that's a very easy way for the state investment company to put large amounts of money to work with minimum to no controversy," Schwarzman said.

Others see Beijing targeting brand names.

"They want to have good brands," said William Overholt, director of the RAND Corp's Center for Asia Pacific Policy.

He pointed to the 2005 deal where Chinese computer company Lenovo Group Ltd. bought the PC arm of International Business Machines for $1.25 billion.

"IBM (Lenovo) is the model of what they would like," Overholt said, adding that China wants the distribution network, stores and brands that come with U.S. companies.

Still, he said he doubts China is quite ready to target the biggest U.S. brands such as Google.

In the deal, which was announced on Sunday, China's state investment company will take a $3 billion stake in Blackstone Group LP BG.UL, ahead of the firm going public.

It is a visible sign of the growing investment muscle that China can wield. China said in March it was creating an investment vehicle to diversify part of its $1.2 trillion in foreign reserves.

The new state agency could invest up to $200 billion from its reserves, state media reports have said, giving China the wherewithal to take on sizable stakes. Its Blackstone interest will be just under 10 percent.

China will learn how to structure and value private equity deals, as well as gaining a network of well connected people, said James Oberweis, president of Oberweis Asset Management Inc., who oversees an $800 million China fund.