Blackstone aims at China buyers

Blackstone Group LP continues to seek investment opportunities in China focusing on real estate, especially properties tied to consumer activity like shopping malls, according to a top company official.

"Our goal is to put more money to work in China," J. Tomilson Hill, vice-chairman of the private equity concern told an audience at the China Institute on Thursday. Blackstone is particularly interested in "shopping malls and tier-one office buildings," he added.

Hill said Blackstone made its first investment in China in 1993. "Like in college, China is now required reading in the world today. Blackstone has never made an investment in Russia," noted Hill.

In addition to private equity, Blackstone also offers alternative asset management (hedge funds). The company manages funds from institutional investors in China. China's sovereign-wealth fund, China Investment Corp, is a major investor with Blackstone.

Despite the recent stock market selloff and slowing economic growth, Hill said Blackstone remains bullish on the mainland.

"China is one of the most exciting opportunities right now. The country is in transition from an export-led and investment-driven economy to one that will be consumer led and producing more internal consumption over the next five to 10 years," said Hill.

Hill admitted that not every investment that Blackstone has made in China has been profitable. "We have made some mistakes and we have learned from those mistakes."

Hill said Blackstone investments in China are now guided by three principles. "You want to have capital that has staying power," to help ride out the rough times, Hill said. "We have less debt in China than we do in North America. We must have control of our investments in China."

Hill said Blackstone made an investment in a State-owned enterprise (SOE) several years ago and lost money probably "because we didn't have control," he noted.

Currently Blackstone's China investments are focused on the country's growing consumer class and real estate. In the consumer sector, Blackstone is invested in leisure and education and shopping malls. "We focus on malls for the middle class with stores like Zara and the Gap," said Hill. "Consumers are still spending in China."

Recently Blackstone set up an Asian-Pacific real estate fund. "It will have a large focus on China and India and 60 percent will be in shopping malls and hotels. About 20 percent will be in office buildings and 20 percent in residential," said Hill.

Hill said China's economic transition will be a bumpy one. "There will be reforms in labor, capital efficiency and land use," he said. There will be dislocations - the restructuring of SOEs will produce some turbulence "similar to what will happen to the energy industry in the US," he said.

Hill cautioned against reading too much into China's stock market. "The Chinese stock market is not a proxy for the country's economy," he said.

Blackstone's founder, Stephen Schwarzman, has donated $100 million from his personal fortune to fund a scholarship program to bring 200 mainly US students to study in China every year at Tsinghua University, which has educated many of China's top leaders.

paulwelitzkin@chinadailyusa.com