The Chinese government agreed to buy a $3 billion stake in New York-based buyout firm Blackstone Group LP, the first step in a plan aimed at diversifying its overseas investments.

The soon-to-be-formed State Investment Co. will buy an undisclosed number of nonvoting Blackstone shares at 95.5% of the price set in its planned initial public offering. The stake will be reduced if necessary to keep it below 10% after the IPO, the government and Blackstone said yesterday in a statement.

China, the largest holder of U.S. government debt behind Japan, is creating the investment company to buy potentially more lucrative assets such as private equity. Foreign-exchange reserves, swelled by export revenue, rose by a record $136 billion in the first quarter to $1.2 trillion, the most in the world, according to China’s central bank. Most of it is invested in sovereign debt.

“With all the money that has flowed to China and the cash they’ve built up, they’re looking for ways to put it to work,” the director of the Center for Private Equity and Entrepreneurship at Dartmouth College’s Tuck School of Business, Colin Blaydon, said. “They want to be more on the inside. Part of it is learning how to play the game.”

The Chinese investment, the first announced by the agency, would coincide with Blackstone’s planned IPO, a transaction that may raise $4 billion later this year. At 10% of Blackstone’s outstanding shares, China’s stake would value the firm at about $30 billion. That would compare with a market value of $39 billion for Lehman Brothers Holdings Inc. and $22 billion for Bear Stearns Cos.

China’s investment company will hold its Blackstone shares for at least four years and isn’t allowed to invest in a competing private-equity firm for a year.

Blackstone, founded in 1985 by bankers Stephen Schwarzman and Peter Peterson, may use the linkup with State Investment Co. to accelerate its entry into China. It has lagged behind rivals such as Carlyle Group in making investments in the country, whose economy expanded at 10.7% last year, the most in 10 years.

The company in January hired the former Hong Kong Financial Secretary, Antony Leung, to head its Asia Pacific operations with a senior managing director who recently moved to Hong Kong from New York, Ben Jenkins.

Finance Minister Jin Renqing said March 9 that the investment company would be modeled on Singapore’s Temasek Holdings Pte., which holds stakes in companies ranging from Chinese banks to Indian textile makers. Some Middle Eastern countries have similar agencies, including Dubai International Capital LLC and the Qatar Investment Authority.

“We are proud to be part of a transaction that we hope strengthens commercial relations between China and the United States,” Mr. Schwarzman, 60, said in a statement through spokesman John Ford.

The State Investment Co., whose formal name has yet to be determined, will report directly to the State Council of the Chinese government.

U.S. Treasury Secretary Henry Paulson tomorrow begins two days of meetings in Washington with Chinese economic officials. America is pushing China to allow international investors to take bigger stakes in Chinese banks, as well as strengthen intellectual property protections.

Private equity may become a more important element of the Chinese economy as companies there seek the management expertise provided by buyout firms a managing director of Los Angeles-based Oaktree Capital Management LLC, William Kerins, said at a press conference in Beijing in March. He estimated that privateequity transactions may increase as much as five times, to $10 billion annually, in the next five years.

Blackstone and competitors including Kohlberg Kravis Roberts & Co. and Carlyle are buying companies at a record pace while assembling new pools of capital. Buyout firms have announced $378 billion of transactions so far this year, Bloomberg data show.

Blackstone would be the second American manager of hedge funds and private equity to sell shares, following Fortress Investment Group LLC’s February offering. Ahead of its IPO, Fortress sold a 15% stake to Nomura Holdings Inc., Japan’s biggest securities firm, for $888 million.

Like Fortress, Blackstone is selling a stake to the public in its management company instead of specific funds. The management company, controlled by Schwarzman and senior managing directors, earns its income from fees received for running the funds as well as profits from selling investments.

Blackstone raised $15.6 billion in July for its latest fund, second only to the $20 billion gathered by Goldman Sachs Group Inc. The firm earned $2.27 billion in 2006, 71% more than a year earlier. It owns companies with 375,000 employees and $83 billion in annual sales.