The name Blackstone comes to my attention as I follow news of the Rio Tinto takeover. Blackstone, according to the Telegraph, is on centre stage this time as a possible rival contender for a controlling stake in Rio Tinto. Rumour also says that Blackstone is acting with full financial backings from “a Chinese sovereign wealth fund”. I’m treating this piece of news with extreme caution, after witnessing how a seemingly firm expression of intention by Baosteel’s Chairman could be dismissed as “a fabrication of the media”. It is also interesting to watch how the mass media in the West have been dancing to the tune of speculators at China’s Stock Exchanges. The price of Baosteel shares had been in decline ever since the company posted a much worse-than-expected 50 percent slide in third-quarter profits late October. I am sure some smart cookies would have made the best of the rumour to ripe some quick profits from China’s largely self-regulated stock market.
When I was looking into how this so-called “US private equity giant” was linked to the “Chinese sovereign wealth fund”, I realised that the China Investment Corporation (CIC) had paid a hefty $3 billion in May this year for a 10% stake in Blackstone. As of today, Blackstone’s share prices have plummeted by almost 36% since it went public in June this year. Some commentators predicted that CIC had learnt from its mistake and would adopt a more cautious approach to future overseas investment. They could not have been more mistaken. It makes one wonder how business decisions are made in a state-run Chinese business today. The trouble is, CIC is not the only state-run corporation that forms expensive but dubious partnerships with foreign companies in an attempt to acquire substantial holdings abroad. Citic Securities, a Chinese government-run investment bank, and Bear Stearns said they would take $1 billion stakes in each other and set up a joint venture in Hong Kong. Bear Stearns is one of those US funds that finds itself in serious trouble when the US real estate market starts to collapse recently. I agree with this commentator when he says, “The crisis at Bear is just another pin in a world of bubbles. There are plenty of others. Sooner or later (as we keep saying, and saying, and saying) bubbles and pins will come together in a dramatic display.”
No one can save Chinese state-run businesses from disasters until they learn how to separate gems from trash. The trouble is: who will hold them accountable as long as the Chinese Communist Party is accountable to no one and holds itself above the law?