The China Development Bank (CDB), one of the country’s largest state-owned banks, is using its US$10 billion capital fund to take stakes in private equity and hedge funds investing in small- and medium-sized enterprises (SMEs) in Asia, the Financial Times reported. CDB is set to become a cornerstone investor in MP Pacific Harbor Capital, an Asian credit fund run by New York hedge fund MatlinPatterson and local lender Pacific Harbor. The new deal comes on the heels of another investment by CDB in buy-out firm TPG, giving CDB the right to co-invest in any deals to which TPG commits. In addition, CDB will be able to transfer technology and send trainees to MatlinPatterson’s headquarters in New York. Chinese banks tend to lend to state-owned groups for credit-risk reasons, resulting in a shortage of capital in the private sector, which tends to be smaller in size but provides the majority of China’s jobs. Efforts to tighten money supply by raising interest rates and slowing loan growth has put particular pressure on this group of companies; as a policy bank, CDB’s decision indicates that Beijing is exploring alternative ways to support private sector development outside direct lending.