China's $300bn sovereign-wealth fund is eyeing big investments in distressed US real estate, according to people familiar with the matter. To finance some of the deals, China may rely on an old trading partner: the US government.

In recent weeks, officials from China Investment Corp has held talks with US private-equity fund managers, including BlackRock, Invesco Ltd and Lone Star Funds, about potential investments in beaten-down property assets, namely mortgage securities backed by office buildings, hotels, strip malls and other commercial property. CIC also is considering buying ownership interests in buildings.

Wall Street Journal