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China's cash-rich financial institutions want to extend their influence overseas, but experts say the risks of investing in Wall Street giants have left them deeply wary of coming to the rescue.
The Bank of China (中國銀行) bought a one-fifth share in the Edmond de Rothschild Finance Company of France for 236 million euros (US$342 million), a spokesman for the French bank said late on Sep 18th. Morgan Stanley, desperate for a white knight, is reportedly in talks to sell a 49 percent stake to China Investment Corp (CIC, 中國投資公司), a sovereign wealth fund. At the same time, separate reports say the US investment bank is also in discussions with Beijing-controlled conglomerate CITIC (中國國際信託投資).
"Crisis is a good opportunity for buying cheap assets," said Mei Xinyu, a leading researcher at a Ministry of Commerce-backed think tank.
But he also cautioned China has much to consider before plunging in, from the real value of US institutions and the risk that Washington will restrict management and voting rights. China has already been burned by investing in Wall Street. The US' finance center was the CIC's first shopping stop after it was established last year to invest part of China's US$1.8 trillion in foreign reserves. The stake they bought in private equity group Blackstone and a 9.9 percent holding in Morgan Stanley are now worth less than half what they paid - US$ 3 billion and US$5 billion respectively.
Another major hurdle in keeping Beijing from bailing out Wall Street is the government would face hard questions at home if it failed to first address China's sagging markets and own struggling national champions. This week Beijing took major steps to dismantle that obstacle by removing taxes on buying shares, increasing its stakes in three leading banks and introducing its first interest rate cut in six years.
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