The Chinese Are Coming! The Chinese Are Coming!

To paraphrase Paul Revere.

Moragn Stanley just announced a 4th quarter loss of US$3.59 billion, the first in its history, and an injection of US$5 billion. But this time, unlike Citigroup (US$7 billion) and UBS (US$10 billion), it is not the Middle-East cavalry that is coming to the rescue. It is the China Investment Corp ("CIC") the Chinese sovereign-wealth investment fund set up to funnel some of the excess trade surplus dollars back into the world market.

The CIC had previously made a US$3 billion investment as a cornerstone investor in the Blackstone Group's IPO. So far, only a minor portion of the earmarked US$200 billion has been used. The sub-prime crisis has single-handedly changed the landscape of international funds flow and ownership. This is a 180 degree turnaround from just a few short months ago, when the US objected to Dubai buying up US Ports, and to China investing in Unocal. Before that, the US also objected to Hutchison a HK listed company investing the Panama Canal on the dubious allegation that it is a defacto proxy of the Chinese Government. Now, Middle East and Chinese money is welcomed with open arms. Money is green and it doesn't matter if the owner is brown or yellow.

Chinese companies have also invested in Standard Bank (ICBC US$5.6 billion), Barclays Bank (China Development Bank US$2.98 billion), and Fortis (Ping An Insurance (US$2.7 billion). Chinese M&A deal flow has been mostly outwards with the top 5 accounting for close to US$20 billion while the top 5 inflows were a measly US$3.8 billion.

Just as the Middle East is recycling petrol dollars, the Chinese are recycling trade dollars.