Wednesday, December 19, 2007
It looks like the Fed and European central banks aren't the only ones concerned (read: panicking) about the credit crunch resulting from the subprime crisis. The China Investment Corp, the state-run investment company capitalized by China's massive foreign exchange reserves, has just agreed to buy $5 billion worth of Morgan Stanley equity. The equity units will pay 9% interest before being converted to account for roughly 10% of the investment banker's common stock.
While the CIC justified the move, which follows a $3 billion investment in the Blackstone Group earlier this year, by arguing that the American financial sector is undervalued right now, it's hard not to interpret this as a private sector credit infusion reflecting China's concern for its massive dollar reserves. Again, people who get overly worried about China's sway over the dollar should remember that now that China's holding about 750 billion of them, the dollar's got some sway over China,too.