It is not a secret, that China has enormous amount of foreign currency reserves--more than $1.2 trillion, and this number is accumulating at the rate of at least $200 billion a year! Why does communism keep so many US dollars? Why don't they just invest it? The basic macroeconomic knowledge tells us that, since China' monetary policy is fixed currency exchange rate, it is a better idea to reserve large amount of foreign currency, in order to bring up or down exchange rate when it is not on the fixed level. But China is absorbing more dollars than he needs. Moreover, US dollars keep depreciating in recent years. So it is a big loss on the value of China's foreign currency reserves. In the other day, Bank of China announced that they would allow a relative flexible $/¥ floating ratio, in order to cool down the White House's continuous complains about the trade deficit between U.S.A. and PRC. The more ambiguity in the $/¥ exchange rate, means a potential greater depreciation of $, which is not good to China.
Second, it is time to diversify his financial portfolio. As a developing country, China's capital market is not mature, and it's fragile under the influence of its social problems, such as disparity of between low-income and high-income classes, high unemployment rate, government corruption, environment damage, etc. These potential problems occur with the rapid development of China, and China's government has almost no control on these issues. Once those bads things go to a threshold level , it would be a terrible disaster to China's economy and cause political crisis.
Thirdly, China is seeking for a high return foreign assets. China still needs more money on their infrastructures, national Medicare fundings, education, and so forth.
With this kind of analysis, the central government had better use his US dollars, instead of holding them on hands. Although there are some limitation on the trading of those $3-billion worth shares. in the next few years, "Blackstone is a profitable investment. " a Chinese government officer once said.
China not only aims at the investment on American assets, but also keeps eye on European and African financial assets. They could be the next investment destinations.
So far, it's hard to say Blackstone group is a wise investment or not based on unpredictable future value. However, it's safe to say that China is on the way of being a real global player.
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