Western Finance

Friday, April 2, 2010

China Slams Western Financial Firms

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China’s $200 billion sovereign wealth fund, China Investment Corp. (CIC), doesn’t plan to open its wallet to foreign financial firms and banks any time soon.

Still mindful of losing about $6 billion of the $8 billion CIC invested in Morgan Stanley (MS) and Blackstone last year, chairman Lou Jiwei not only bluntly rejected the notion of putting the government’s money into banks outside of its homeland, but did so citing an overwhelming fear.

"I don’t dare to invest in financial institutions now,"Lou, said today (Wednesday) at a conference in Hong Kong, Bloomberg reported. "The policies of the developed nations on these institutions are not clear. Until they are clear, I don’t dare to invest in them. What if they go bust? I will lose everything."

The timing of Lou’s remarks has to be intentional, as government officials are about to enter its fifth round of continuing economic-focused dialogue with U.S.

Treasury Secretary Henry Paulson. And he wasn’t the only high-profile person in China who trashed the health of the U.S. economy, which officially entered a recession earlier this week.

"American consumption, to be quite blunt about it, is toast, and when the consumption bubble goes that’s a big problem for this region," Stephen Roach, chairman of Morgan Stanley Asia Ltd., said at the same conference.

"There is no country in this region that is not either slowing or in recession right now because the world’s biggest end market for its exports is in serious trouble."

One can’t help think Roach is overlooking the facts that Morgan Stanley was one of CIC’s biggest losing investments, and that China followed the United States’ lead last month in announcing a $582 billion economic stimulus.

That stimulus money will largely go to infrastructure projects - low-income housing, water and energy projects, airports, disaster relief and new railroads. [Editor's note: Money Morning recently identified five way investors can profit from China's stimulus.]

Ironically, those projects will be the focus of the United States’ next stimulus plan when President-elect Barack Obama takes office in January.

With little exposure to the mortgage-backed assets responsible for the meltdown of the world’s financial system, and billions being poured into infrastructure, China could come out significantly ahead of the West when the global economy finally rebounds.

But even with $1.6 trillion in foreign currency reserves, China still lacks the firepower to bail out the rest of the world.

"China can’t save the world," Lou told Xinhu. "It can only save itself."

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