Does the China investment corporation (CIC) have a coherent investment strategy?
I personally would say no. And I am not alone. Tan Wei of mergermarket.com reports (in the FT)
“a source familiar with the Chinese government’s thinking … who has direct access to the Chinese government officials” … says that until now CIC has lacked a clear strategy and will in future focus its investments in the natural resources sector.”
That jibes with Jamil Anderlini’s reporting in late December:
“Such a concentration of the country’s wealth in one entity has inevitably drawn intense interest, not just from every fund manager on the planet but also from powerful forces within the state bureaucracy. Each of these groups has its own ideas on how the money can best be spent.”
It now seems likely – despite protests to the contrary (“The deal was struck over a matter of months rather than a few weeks”) – that the CIC’s decision to invest in Morgan Stanley wasn’t entirely the product of a careful deliberative process. Tan Wei reports that the CIC jumped on the Morgan Stanley deal after the China Development Bank (itself soon to be recapitalized by the CIC) missed out on a big stake in Citi because it wasn’t ready to move quickly enough.
“An insider at Citigroup revealed that the US investment bank had first approached the China Development Bank (CDB) to see if it was interested in acquiring a stake in the bank. CDB had shown strong interests in doing so, the insider said, but told Citigroup that it would need three days to make a decision because it needed, as a state-owned bank, to get government approval. At that same time, Abu Dhabi was also offered the opportunity to invest and was able to move forward with the purchase right away. The insider added that it was for this reason that CIC didn’t hesitate when approached by Morgan Stanley about acquiring a stake, having learnt from CDB’s experience that it needed to act quickly.”
Wei’s account jibes with Keith Bradsher’s story that the Morgan Stanley stake came as a surprise to the CIC’s staff. If Wei and Bradsher are right, the decision to take a punt on Morgan Stanley sounds rather like the decision of jump at the chance to get in on Blackstone’s IPO even before China had formally set up an investment agency. The CIC almost certainly lacks the staff needed to do much due diligence on its investments in large US financial institutions. The balance sheet of a big US broker-dealer presumably doesn’t look all that much like the balance sheet of a big Chinese state commercial bank.
