China eyes Morgan Stanley but fears US resistance

Tag : resistance
BEIJING: Fund managers associated with the Chinese government haveindirectly confirmed they were interested in picking up the stakes,probably at distress prices, in Morgan Stanley, which is battlingfor survival. But they worry that the US government will block anysuch move by the newly created China Investment Corporation.

CIC already owns 9.9% of Morgan Stanley, which analyst say gives ita better position to compete for ownership of Morgan as compared toanother bidder, Wachovia Corp. The Chinese government had allocated$200 billion as base capital while creating the CIC a year back.Its main mandate is to buy shares in overseas markets earlier thisyear.

"Even if the CIC intended to buy a stake, it could be very hard nowas the purchase of a stake, even one smaller than 10%, could besubject to the US government foreign investment review," theofficial news agency Xinhua reported quoting an unidentified CICofficial.

The storm that has hit Wall Street is seen by some in China as agolden opportunity for the Chinese government to muscle in towestern markets and enhance its influence. The People's Bank ofChina manages another fund with $1.8 trillion in reserves. The twoinstitutions are widely expected to look for leverage opportunitiesin the midst of a credit crisis in the US.

CIC suffered major losses after buying Morgan Stanley stakes for$5.6 billion and $3 billion worth of shares in U.S. private-equityhouse Blackstone. The choice before Chinese fund manages is to usethe opportunity to more than recoup their losses or stay away fromtaking further risks.

Another sovereign fund looking for new opportunities in the WallStreet is Singapore government's Temasek Holdings, which has vastfunds to buy overseas shares. Analysts say it will gain from Bankof America's takeover of Merrill Lynch & Co. This is becauseTemasek obtained special protections while buying a stake inMerrill last December.