BEIJING (AP) — A Chinese state fund that is buying a $3 billion stake in US private equity firm Blackstone Group LP wants to avoid a political backlash when it makes other investments abroad, an official involved in the deal said yesterday.The new fund, created to invest a portion of Beijing's mountain of foreign reserves abroad, is expected to buy minority stakes in companies rather than pursuing outright takeovers, said Jesse Wang, chairman of government-owned Jianyin Investment Co., which represented Beijing in the deal with Blackstone.

Chinese companies have been uneasy about foreign acquisitions since the uproar in 2005 over state-owned oil company CNOOC Ltd.'s attempt to acquire US oil and gas producer Unocal Corp. CNOOC dropped its bid after American critics said it might endanger energy security.

"Surely, we don't want to (get) involved in any kind of political concerns. Maybe the fund is sizeable, and also people may worry that it's from China and a state investment vehicle," Wang told The Associated Press in a phone interview.

"Therefore, I think it will be always an issue that the new company must be very careful," he said. "Basically, I think they are going to have mostly commercial kind of investments, not involving sensitive investments."

The Blackstone deal, announced on Sunday, marked the start of China's effort to diversify how it invests its $1.2 trillion in reserves, held now in US Treasury securities and other safe but low-yielding assets.

It comes at a time of tensions with Washington over China's swelling trade surplus and unease in the United States and elsewhere over Beijing's growing economic and diplomatic might abroad.

Senior US and Chinese officials are due to meet in Washington this week for talks aimed at defusing trade tensions and keeping a key trading relationship on track.

Beijing announced plans for the State Investment Co. in March to improve returns on its reserves. The government has released no details of its planned size, but economists believe it could be allocated as much as $200-$400 billion, creating one of the world's biggest investment funds overnight.

The company is likely to allocate money to other private equity funds or investment banks to invest in stocks and other assets world-wide, said Lan Xue, director of China research for Citigroup Inc.

"Any country that is sitting on a huge pile of financial reserves is going to start to adopt this way of managing their cash pile," she said. "So whether the US likes it or not makes little difference to whether China is going to do it or not."

Chinese authorities say their investment company is modelled in part on Singapore's state-owned Temasek Holdings, which invests in banks, real estate, shipping, energy and other industries in Singapore, India, China, South Korea and elsewhere.

"We hope it can get into operation within this year," Wang said.

For now, China has no immediate plans for more investments like the Blackstone deal, which was made early because the company is moving toward a stock market initial public offering, Wang said.

Blackstone, founded in 1985, has recorded $400 billion in deals. Its holdings range from Madame Tussauds wax museums to real estate company Equity Office Properties Trust.

The purchase would be concurrent with Blackstone's IPO, which is expected to raise up to $4 billion. The IPO was announced in March but no date has been set for its debut on the New York Stock Exchange.

Beijing's investment in Blackstone appeared to be structured to avoid a political backlash.

China is buying nonvoting shares and agreed to limit its stake to no more than 10 percent of New York-based Blackstone.

Wang said the Chinese fund wanted that arrangement to keep successful Blackstone managers in control.

"We think that before, they had a good performance, and we don't have particular experience about investments in the States or in other places. So, as far as their deciding to maintain this structure, we agreed to invest and follow their arrangement," Wang said.

Asked whether Beijing ceded control to avoid inflaming US political sensitivities, he said: "I don't think there is any political consideration, because it is a purely commercial investment."

Wang said he had no information on how much money would be allocated to the State Investment Co. and said its structure, personnel and investment strategy were yet to be decided.

Wang's company is owned by Central Huijin Investment Co., a government company that is expected to become part of the new investment fund.

As the fund makes more investments abroad, the initial impact on U.S. financial markets should be small, Xue said. But she said Chinese buying of Treasurys, a source of financing for U.S. government budget deficits, is likely to dwindle.

"I think they will see this very active buying not disappear, but not be as aggressive as it has been for the past decade," she said.