22 December 2007

The Chinese Wall Street

NYT "Morgan Stanley’s announcement Wednesday that it would sell a $5 billion stake in itself to the China Investment Corporation was a surprise not just for investors in the big investment bank. It also marks an abrupt shift in strategy for the $200 billion fund, and underlines the extent to which the government fund appears to be under the direct control of China’s leaders.

The investment fund declined to comment late Wednesday on its acquisition of nearly 10 percent of Morgan Stanley. But a person familiar with the fund’s activities said that the decision had been sudden and little expected by the fund’s staff.

“I am also surprised,” said the person, who insisted on anonymity because of the sensitivity of the deal.

The China Investment Corporation is under the control of China’s finance ministry, with some influence as well from the People’s Bank of China, the country’s central bank. There has been discussion in the Chinese government over whether even more foreign currency should be injected into the investment fund, as the People’s Bank of China continues to accumulate $1 billion a day as it buys up dollars to prevent the value of China’s currency from rising in international markets."

"In taking a major investment from the Chinese sovereign wealth fund, Morgan Stanley is following a model set by Citigroup and UBS, two other financial giants badly damaged by their exposure to securities backed by risky home loans. Citigroup sold a 4.9 percent stake to Abu Dhabi's investment arm, while UBS sold stakes to the Singapore government and an unidentified Middle Eastern investor."

China buys Wall Street

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