With a wave of a magic wand, some $2.3 trillion in Chinese privately-held money (on top of the $1.2 trillion worth of the government's foreign reserves) became available overnight for global equity markets . . .approximately 15% of the total value of the US stock markets.

The fact that Chinese financial authorities are now holding immense power over the army of analysts is indisputable. Also indisputable is the fact that, so far, not a single analyst has noted that an idea that the Chinese banks may change their equity positions on a whim of the Banking Regulatory Commission is hardly a sound approach to investing. What today may be a call for more foreign equity holdings tomorrow may turn into a state-enforced sell-off.

In fact, the first 'buy' call from Beijing has just landed on the New York desks. Last week, the Chinese government purchased one of the leading private equity investment companies in the US, the Blackstone Group, for $3bn. The deal triggered an avalanche of analysts' notes.

Some argue that China-owned Blackstone is a part of Beijing's master plan for world domination. Others claim that it is a part of the preparations to shoehorn the deal into some "overarching economic objectives".

All of these arguments have some merit, yet all failed to notice the historical similarity between what China is doing today and what Japan was doing in the 1980s.

Anyone who lived in California in 1989 would remember the last days of Japan's control over downtown Los Angeles. Japanese investors spent fortunes raised on trade surpluses with the US, hoovering up American real estate at valuations that were sky-high for anyone else in the market.

At the time, this was presented as a business strategy by Japanese investors diversifying their foreign holdings, increasing yield above the US treasuries, testing alternative investments, experiencing from the inside US financial markets and reducing frictions with the US over the massive foreign exchange reserves held by the Japanese government. Irony has it: these are the same reasons offered today in the Blackstone case.

What happened in Japan (and what is happening in China now) speaks volumes as to the real dangers of having the Chinese state elephant galloping across Wall Street. At the time, purchases by Japanese moguls of exceedingly overpriced prized properties were billed as evidence of Japan's economic and social superiority. What used to be gargantuan office towers stretching into the smoggy LA skies for rational Californians became glass-and-steel testaments of the resurgent nationalism in Tokyo. The same symptoms of nationalist delusions of grandeur are already emerging in China.

For Japan, it all turned sour. Between 1990 and 1991 Japanese investors lost tens of billions of dollars withdrawing from the US real estate markets at the bottom of a US economic downturn and amidst a prolonged Japanese recession.

To their credit, no sane person in Tokyo has ever called for a retaliatory action against the US.

China is hardly in the same space as democratic Japan. It is hard to imagine how an unholy trinity of communist ideology, nationalist sentimentality and state-dominated economics would be able to avoid turning into a bully should the multibillion-dollar state investments take a nosedive. It is even harder to imagine how such a calamity can be avoided given that China is buying into some of the riskiest private equity plays at the top of the market hype and valuations for such deals.

But every cloud has a silver lining. China's appetite for state investments abroad is no exception. In 1985, the Reagan administration, faced with a rising trade deficit, signed the multilateral Plaza Accord with Japan to drive the dollar down relative to the yen. Now a new international accord is being urged to prop up the US dollar against the euro and the yuan.

At the same time, large-scale investments in the US, such as China's purchase of Blackstone, enable Beijing to unload some of its vast foreign exchange reserves, giving China more room to continue intervening aggressively in the forex markets.

This may be the silver lining that the Chinese authorities are hoping for. Then again, this temporary outlet valve might simply delay the inevitable . . . a large-scale appreciation of the yuan and a further decline in dollar value vis-a-vis the euro.

For now, only one thing appears certain . . . the financial analysts will continue reading the tea leaves of Chinese authorities' edicts.

Dr Constantin Gurdgiev is an economist and editor of Business & Finance magazine

EUROPEAN JEALOUSY

LAST weekend our Italian friends were proudly showing us their new home, an impressive architect-designed 200-plus square-metre house, on a decent-sized plot in the historic town centre with a view of the Dolomite mountains towering above. The purchase set them back a pitiful 200,000. My only consolation was the fact that their modest Italian mortgage was some 0.5% costlier than our jumbo-sized Irish one.

The great European promise of free movement of goods, services and people has barely touched financial services. After decades of markets liberalisations, it is still easier and cheaper for an average European to buy shares listed in New York than those listed in a neighbouring country.

After the truckloads of financial services directives, my US-based and administered credit card still offers the best credit terms, rates, fraud protection and customer service than anything offered this side of the Atlantic.

According to the European Central Bank, average consumer credit rates within the EU currently range from 6.3% in Finland and 6.8% in Ireland, to 9.4% in Italy and Spain, 10% in Greece and 12.2% in Portugal. Fewer than 1% of all credit transactions in the EU are carried out across the borders.

Finally on Monday, after over five years of bickering and fighting, the EU's ministers have agreed to streamline regulations on taking out consumer loans of up to 100,000 across the 27 member states.

Sadly enough, by stopping at an arbitrary 100,000 limit and by failing to deregulate financial transactions fees across the European Union, the directive will do nothing to free up the European markets for longer-term credit as well as for the larger part of consumer credit.

At least for now, my Italian friends will have to pay more per each euro borrowed to finance their cheaper and bigger house, than us. Sweet revenge.