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Henry Paulson

U.S. to Speed Investment From China Banks

Henry Paulson 60%

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The U.S. agreed to speed up approvals for Chinese financial institutions seeking to invest in the country, as Treasury Secretary Henry Paulson tries to find ways to unlock frozen credit markets and stabilize banks. 

The announcement was made in a joint statement at the close of two days of bilateral talks between China and the U.S. in Beijing. The U.S. also welcomed “commercially based” investments by China’s sovereign wealth fund and the foreign- exchange administration in industries including financials. 

The U.S. has pledged more than $8.5 trillion to rescue its financial system after credit markets seized up 15 months ago. The head of China’s $200 billion sovereign fund this week said he wouldn’t “dare” invest in overseas financial firms, and Vice Premier Wang Qishan yesterday called on the U.S. to “ensure the safety of China’s assets and investments in the country.” 

“‘We are going to open up approval for you to buy something that’s not worth buying,’ that’s basically what the U.S. is saying,” said Craig Russell, Beijing-based chief China market strategist at Saxo Bank A/S, in a Bloomberg Television interview. “It seems like the U.S. has no cards to play; China has all the cards. It rings very hollow.” 

Western banks have tapped state-owned investment funds in Asia and the Middle East for money as they seek to shore up capital eroded by almost $1 trillion in writedowns and losses from the collapse of the U.S. subprime mortgage market. 

Investment Losses 

Wang and Paulson closed the fifth round of the Strategic Economic Dialogue in Beijing today, the last for their initiator, Paulson. 

China’s sovereign fund, China Investment Corp., has lost $6 billion on paper from stake purchases in Morgan Stanley and Blackstone Group LP. The firm invested $5 billion last year for 9.9 percent of Morgan Stanley and $3 billion in Blackstone, the world’s largest private-equity firm. Both New York-based companies have lost more than three-quarters of their market value since the investments were made. 

China has no plan to inject more foreign-exchange reserves into CIC, Zhu Guangyao, assistant finance minister, said today in Beijing. 

Chinese banks are seeking to add outlets in the U.S. China Merchants Bank Co., the nation’s fifth largest, opened its New York City branch in early October, making it the first establishment by a Chinese lender in the U.S. in two decades. Industrial & Commercial Bank of China Ltd., the world’s largest by value, opened its first U.S. branch two weeks later. 

Still Waiting 

China Construction Bank Corp., the nation’s second-largest, is still waiting for approval for its U.S. branch after submitting an application last year. 

As part of today’s agreement, China will also allow foreign banks operating on the mainland to borrow capital from their affiliates overseas on a temporary basis to boost liquidity and confidence in the lenders. The loans won’t be counted toward foreign banks’ short-term debt quotas. 

China will also make it easier for foreign banks to trade bonds on the Interbank Bond Market, the country’s largest debt market, by giving them the same treatment as local financial companies. 

At the same time, China may resist U.S.. pressure to relax restrictions on overseas investment in its banks, a person familiar with the matter said yesterday.

 

By Li Yanping and Rebecca Christie

See Bloomberg


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