China Sells Stake in Blackstone as Deal Scene Turns Sour

At a time when deals between U.S. and Chinese companies are on the rocks, an early example that united a major Wall Street deal-maker with the Chinese government has come to an end.

China Investment Corp., China’s sovereign wealth fund, has sold its stake in Blackstone Group, the U.S. private equity giant, the latter said in a recent filing. The fund, known as CIC, did not disclose a reason for the sale, and neither side disclosed how big it was.

The sale ends an 11-year investment that seemed to presage a new era of economic relations between the two countries. It helped Stephen Schwarzman, Blackstone’s co-founder, become a major player in business and diplomatic circles between the two countries.

That era seems very much over.

U.S. officials have taken a harder stance against Chinese money as Chinese buyers have looked to strike deals in sensitive areas such as semiconductors and self-driving cars. President Donald Trump’s criticism of China’s trade policies and his new tariffs on imports of steel and aluminum have worsened relations between Washington and Beijing. The souring atmosphere could put Schwarzman, who serves as an informal economic adviser to Trump, in a difficult position.

Blackstone sought to emphasize its continuing relationship with CIC, pointing to money that it said the Chinese company still had in some of its investment funds.

“We greatly value our partnership with CIC and are grateful for their successful, long-term investment in our firm,” said a Blackstone spokesman in an emailed statement. “We continue to expand this important relationship as one of CIC’s major asset managers and look forward to working closely together.”

CIC did not respond to a request for comment.

The CIC-Blackstone tie-up was seen as a notable moment in business relations between the United States and China when it was struck in 2007. The Chinese government created CIC to find more creative and profitable ways to invest the huge stash of dollars it accumulated thanks to its enormous economic growth and the way it controlled the value of its currency. Generally, it invested that money in U.S. government bonds.

While Chinese companies had begun to seek major deals in the United States and elsewhere, the Blackstone-CIC deal represented the first time that China was investing some of its foreign reserves in something other than U.S. Treasury bills. Schwarzman called it “a paradigm shift in global capital flows.”

CIC had bought the stake before Blackstone’s 2007 public offering, making it one of the firm’s biggest shareholders with more than a 9 percent stake in the public stock. The size of the stake at the time of the sale was not clear. A year ago, Blackstone said in its filings that CIC still owned a nearly 5 percent stake.

Blackstone shares have gained 11 percent since their opening price when they were listed publicly. Blackstone says investors who have held shares over that time have more than doubled their money when dividends and other transactions are included. The deal also was an early effort by Schwarzman to burnish his reputation in China. After that, in 2013, he set up a $300 million scholarship fund for study in China, the single largest gift to education at that time. The program, called the Schwarzman Scholars, pays the expenses for 200 students from around the world each year to do a master’s program at the prestigious Tsinghua University in Beijing.

Billed as an attempt to help reduce the economic and security tensions between China and the rest of the world by educating future leaders, the program has elevated Schwarzman politically in China, too.

While the Blackstone-CIC deal was seen as a first, it did not open the floodgates for Chinese government money into the U.S. financial sector. Chinese officials grew wary after the 2008 global financial crisis, though CIC has expressed interest in other investments in the United States.

Even that activity may face hurdles. Washington has also stepped up its scrutiny of Chinese acquisitions of U.S. companies, citing concerns about national security.

The total transaction value of newly announced Chinese acquisitions in the United States in 2017 dropped by 90 percent compared with the previous year, to $8.7 billion, according to the Rhodium Group, a data provider. That was the lowest level in six years, the group said. Part of the drop stemmed from capital controls put into place by China’s government in order to rein in huge amounts of money going overseas. Those concerns have even bled over into transactions not involving China. This week, Trump blocked a $117 billion deal for Qualcomm, the U.S. chipmaker, to be acquired by Broadcom, a rival based in Singapore, over concerns that it would weaken Qualcomm’s competitive position against Chinese competitors.

The scrutiny became so intense last year that Liu Fangyu, managing director of CIC, said that while China’s sovereign wealth fund wanted to make big bets on U.S. companies it was being blocked by the U.S. government.

CIC sold its stake in Blackstone also as Beijing is cracking down on corporate investments overseas after a multibillion-dollar shopping spree that saw private Chinese conglomerates buy up high-profile companies and property. One of those was the nearly $2 billion purchase of the Waldorf Astoria hotel in New York City from Blackstone, the highest price ever paid for a U.S. hotel at the time. The buyer, Anbang Insurance, was seized by the Chinese government last month, and its founder has been accused of economic crimes.