China’s Government Jumps into Global Real Estate Investment with Blackstone

According to reports in the Wall Street Journal and the official China Daily, China’s government has made an investment of more than US$500 million into Blackstone Real Estate Partners VII, a private equity fund active in in commercial real estate.

While there has been considerable press coverage of private Chinese companies and individuals purchasing real estate assets overseas, the government’s financial institutions had previously remained cautious about getting involved in real estate investments outside of China.

The investment was reportedly made by the State Administration of Foreign Exchange (SAFE), which manages China’s more than US$3 trillion in foreign exchange reserves. However, there were no reports of official confirmation of the move by SAFE or Blackstone.

Blackstone’s private equity funds have been active in nearly every major sector of commercial real estate, owning offices, warehouse and distribution centers, shopping centers and hotels. In particular the firm has capitalised on limited supply and slowly increasing demand for commercial space in the United States and benefit from occupancy improvement and rent growth.

The Wall Street Journal report said SAFE will allocate about 5 percent of the $3.2 trillion foreign reserves it controls to asset classes such as private equity, as an alternative to its traditional investments in government bonds, cash and other liquid assets remains the main trend.

Commenting on the investment in the China Daily, Zhang Anyuan, a senior analyst at the economic research institute under the National Development and Reform Commission said, “The diversification of China’s foreign exchange portfolio is vital for the country to maintain the value of its assets.”

We can expect that with the central government getting involved in overseas real estate investments, and the local property market remaining tightly controlled, that there will likely be more moves by government companies to purchase overseas property assets, and further growth of sales of overseas homes to Chinese nationals.