PRIVATE equity is the new gold - or so the Chinese would have it. The world's most populous state stunned the financial markets this week by stumping up $3 billion of its $1.2 trillion foreign reserves as an investment in the upcoming flotation of Blackstone, one of the world's largest private equity firms.

China's quick move to latch onto the private equity boom is in sharp contrast to its approach to gold. The country has yet to deliver on last year's stated ambition of doubling its $14 billion-odd gold bullion reserves as part of a plan to diversify away from the US dollar.

Interesting, too, that China is pumping its money into a private equity firm rather than one of the investment funds it runs.

Ireland is on top of this trend. Philip Lynch's quasi-private equity company One51, which is making a bid for ICG, has piqued the interest of Farmers Business Developments, which holds a 24.8pc stake in insurer FBD Holdings.

The farmers have made fortunes from their investment in FBD Holdings. Lynch is in talks to give a 20pc-plus stake in the company for an investment of about €100m.

Financier Niall McFadden's private equity vehicle Boundary Capital, the private equity minnow which floated in Dublin last week, has also attracted a legion of fans.

Shares in Boundary, which has a host of investments across a number of sectors, including business services group Veris, educational publishing company CJ Fallon and construction services firm Siteserve, have soared 15%. Not a bad return for a week, considering that funds private equity companies typically target returns of between 20%-30%.

"Investing in the private equity companies that are listed themselves is just another way of getting a return from this sector. It is certainly more liquid than being invested in a private equity fund, where your capital is normally tied up for up to seven years," said a senior Dublin corporate financier.

In order, of course, for the private equity firms to prove attractive, they must be successful at what they do - sowing up private equity deals according to something of a textbook formula. Classic practitioners of the private equity model target struggling companies, load them with debt, get down to the brass tacks of laying off staff, stripping company assets and fixing other problems before selling on the company at breakneck speed.

Up until last year, the largest leveraged buyout in history was the $31.4 billion takeover in 1988 of RJR Nabisco, a food and tobacco conglomerate, by American private equity group Kohlberg Kravis Roberts (KKR).

This buyout was the basis of the book and film Barbarians at the Gate of the early 1990s, which led to widespread branding of private equity as "barbarians of capitalism". Others critics like to call them "locusts" or, indeed, downright "amoral asset strippers".

Swashbuckling buyouts have entered another league over the past 18 months. Last July saw the $33 billion acquisition of American hospital operator HCA by three private equity firms - KKR, Bain Capital and Merrill Lynch's buyout unit. - knock the Nabisco deal off the top spot.

Since then, a new record has been hit every other month. Blackstone snatched the title for largest ever deal last February with its $36 billion acquisition of US commercial property group Equity Office Properties - only to be trumped a few week's later by news of the $45 billion Texas energy group TXU by KKR and Texas Pacific Group.

"The sheer volume of cash that is being raised by private equity is resulting in bigger deals being done," according to Pat Hinkson, a portfolio manager with Anglo Irish Bank, which set up a large-cap merger and acquisition equities fund last December, partially to exploit this trend.

Last year saw close to 700 private equity funds worldwide raise a record $432 billion in funds, according to Private Equity Intelligence, an industry research firm. It predicts that fundraising could reach the $500 billion mark this year.

Data from Thomson Financial, a business information group, show the total value of private equity buyouts hit $700m globally last year, more than double the record set in 2005 and 20 times bigger than in 1996.

With private equity firms having already racked up more than $370 billion in global buyouts this year, the value of deals is on track to eclipse last year's record, according to Dealogic, another financial data provider.

Few private deals highlight the "buy it, strip it and flog it" or "strip and flip" approach more than the buyout of Hertz, the troubled car rental company bought by three private equity houses for $15 billion from Ford in late 2005.

A mere 12 months later, the trio floated the company on the New York Stock Exchange. The quick exit - well short of the typical five- to seven-year investment timeframe for private equity companies - prompted critics to describe them as more fast-buck artists than corporate turnaround gurus.

The fast-growing power of private equity has spawned a backlash from politicians and unions that has been gathering pace on both sides of the Atlantic in recent months.

Britain's Financial Services Authority has warned that increasing competition for deals has cause private equity fund managers to pay chunkier valuation multiples - and take on higher levels of debt.

Unions are increasingly denouncing private equity as clandestine takeover vehicles chasing short-term profits, with little regard for workers' welfare. The typical private equity strategy of wielding an axe over jobs of a takeover target is bad enough, they say. Worse still are fears that some takeover targets, which are being straddled with ever increasing levels of debt, might find it hard to keep their own employees' pension funds in surplus.

"The facts of the matter are that company pension schemes are making up more and more of a retirement incomes as state funding levels fall around the globe. Then you have private equity firms buying up more and more private companies. We're looking at a ticking bomb if pensions regulators are not vigilant in making sure that their pension funds remain solvent," the senior Dublin corporate financier said.

Meanwhile, pressure from politicians recently prompted Ed Balls, the Economic Secretary to the UK Treasury, to launch a review of ways private equity can legitimately avoid millions of pounds in tax. Tax avoidance comes from the common practice where private equity group lend cash - known as "shareholder debt" - to companies they buy which incur interest that is tax deductable. Shareholder debt typically makes up 60% of the financing of a private equity deal. The politicians' main gripe, therefore, is that public money is significantly funding private equity deals.

"The increased scrutiny from regulators such as the FSA is not surprising given the heightened profile of private equity backed deals internationally and the fact that the incidence of such deals will only increase in the months and years ahead as international private equity funds seek appropriate opportunities for their investors," said Leo Casey, a director at IBI Corporate Finance.

"With as many as 20% of private sector jobs in Britain alone now in private equity run businesses, the industry will have to accept that it should become open to a reasonable level of scrutiny and regulation," he added.

However, Casey warned that it is critical that regulators find a way of doing this without compromising the very things which make private equity work so well.

"Maintaining and incentivising the management teams is key to making a private equity buyout work," according to Greg Hogan, a corporate finance director at Deloitte.

However, this very tenet is also coming under scrutiny. US's pre-eminent business court in Delaware, the corporate home of more than half the Fortune 500 list of America's top companies, is closely monitoring the wave of private equity deals.

A major issue for the court, according to legal observers, is whether executives of companies being taken over are more concerned about their own job safety or trying to get the best price for shareholders.

"In a buyout, the shareholder is out completely," Charles Elson, director the University of Delaware's Centre for Corporate Governance, has been cited as saying. "If management stays, the idea is that there will be profits to be had down the road It's the price the shareholder is getting that's the bottom line."

Back in China, few are concerned about the raging debate between global private equity players, politicians, unions and regulators.

But Beijing is surely hoping that it may help ease Wall Street's distrust of China, which famously came to a head when Chinese oil company Cnooc made a failed attempt to buy US rival Unocal in 2005.

The Chinese were forced to drop the $18.5 billion bid as US lawmakers threatened to block a deal amid concerns it would infringe on America's national and economic security.

"The actual amount that China has committed to (Blackstone) isn't huge," said Hinkons. "Much more significantly, the move will improve China's knowledge base in this area so they can possibly do it themselves, ultimately."

Even more reason for America to seek a commitment from China to pick up the pace of its economic reforms at high-level talks between both countries in Washington, which conclude today.