What U.S. Investments Does China Like?

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Includes: AAPL, C, GOOG, JNJ, KO, V
by: Jim Trippon

China went on a U.S. buying spree last year, or so says the New York Times. In a gushing story, the Times revealed that China’s sovereign wealth fund “quietly snapped up” more than $9 billion worth of shares last year in some of America’s biggest corporations, including Morgan Stanley (NYSE:MS), Bank of America (NYSE:BAC) and Citigroup (NYSE:C).

Also on the shopping list were some of America’s most famous global brands, including Apple (NASDAQ:AAPL), Coca-Cola (NYSE:KO), Johnson & Johnson (NYSE:JNJ), Motorola (MOT) and Visa (NYSE:V).

China Investment Corp., the government’s $300-billion sovereign investment fund, has had a mixed investment record since its creation in 2007 with an initial stake of about $200 billion.

The CIC’s cash supply was later increased to $300 billion as the Chinese government tried to figure out what to do with a mountain of foreign reserves, now swelling to more than $2.4 billion. The CIC started out by acquiring a $3 billion stake in the private equity firm Blackstone before its IPO, and paying another $5 billion for a 9.9% stake in Morgan Stanley. Blackstone began to lose value almost immediately after CIC made its investment. Morgan Stanley was savaged during the global financial crisis. Chinese politicians and media were sharply and uncharacteristically critical of the CIC after the debacle which began with the Blackstone investment.

The New York Times says the fund performed well in 2009, particularly because it was buying aggressively as the market recovered. But the record shows that the CIC has had some mixed results. Its $650 million dollar investment in money management firm BlackRock is up more than 60% over the past year. But Citigroup is down 18% over the same period.

None of the stakes that China is buying in American firms is large enough to raise concerns about foreign control of strategic American corporations. Veteran China-watchers will remember the political firestorm in 2005 which scuttled a Chinese oil company’s attempt to buy the U.S. oil firm Unocal. China’s investors have steered clear of sparking another controversy of that kind.

Perhaps most important is the misleading characterization of China’s investments as being a “buying spree.” Nine billion dollars is a relatively small stake in the American economy compared to the CIC’s $300 billion investment arsenal. It is even more microscopic in comparison to China’s $2.4 billion mountain of foreign reserves.

Rather than going on a “buying spree” in the U.S., China has placed only a small number of very conservative bets on U.S. corporations. The CIC doesn’t reveal its investment strategies but it is reasonable to assume that the bulk of the sovereign wealth fund’s $300 billion was placed in other countries. The CIC investments in the U.S. were revealed on Friday due to an SEC disclosure rule.

Currently it is believed that at least $700 billion of China’s foreign reserves are invested in U.S. treasuries. If Beijing decides to up its contribution to the CIC, it is a fair bet that most of the new money would also be invested in a similar fashion with only a small percentage going to the U.S. stock market.

In short, Beijing isn’t coming to the rescue of Wall Street. If anything, the growing pool of money being channeled to the CIC indicates a diversification away from U.S. treasuries.

Disclosure: no positions

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