China Finds A Way Around US Investment Concerns

Banking, finance, and taxes

Published: February 8, 2008 6:22 am

The US Congress is nervous about sovereign funds from places like China and the Middle East owning too many US banks and financial companies. Some how these firms are "strategic assets" which need to be guarded.

The Chines may have found a way around this. They are planning to put $3 billion to $4 billion into a new fund being created by Flowers, a US LBO firm. According to The Wall Street Journal "Lou Jiwei, chairman of CIC and former vice minister of finance for China, said the state investment fund was looking to invest in "portfolios" of companies, rather than individual firms."

A program of China investing in US private equity operations would take it one step away from owning US companies directly. However, the move may be a simple "beard". Depending on what portion China controls of a US fund, it may be able to manipulate what that fund does with its money and how it votes the shares which it owns in US public companies.

Pretty clever.

Douglas A. McIntyre

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