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The Blackstone Group on Friday launched its onshore private equity fund management company in China.

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The New York-based p.e. giant plans to raise 5 billion yuan (US$731 million) from Chinese investors for the fund, a joint-venture with the government of China’s Pudong New Area, which covers Shanghai and its vicinity. The Blackstone Zhonghau Development Investment Fund is denominated in the Chinese currency.

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“We see this as a start of a more wide-ranging expansion in China,” Blackstone chief Stephen Schwarzman told The Wall Street Journal in Shanghai. “China is a required course, not an elective, for any sensible global financial institution.”

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Schwarzman said running both an onshore and offshore China fund will allow Blackstone to both increase its staff in the region, as well as giving it access to smaller deals in the country.

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The private equity firm and the Chinese government have forged close ties in recent years. China owns a $3 billion non-voting stake in the firm, and its sovereign wealth firm, China Investment Corp., has awarded Blackstone a $500 million fund of hedge funds mandate. The Shanghai joint-venture is actually Blackstone’s second base of operations in China; the firm opened an office in the Chinese capital, Beijing, last year.

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