Digging to China

DTC - Investment in China: Different Financial Terrain/Wall Street Embraces Sovereign Wealth Funds

Segment 1: Investment in China: Different Financial Terrain

Is China’s economy a bubble that’s poised to pop at any moment, or is it poised to continue its remarkable run? Fixed-asset investment as a percentage of GDP has reached nearly 50%. Rapid growth requires huge amounts of capital investment. Investors in China expect to make a lot of money from the “Rise of the East.â. The conventional wisdom is this: Initial investors in a new trend often do well. They are able to choose the best opportunities at the best prices. Those who come along later have progressively less and less choice and higher and higher prices. As prices rise, so do expectations. But as expectations rise, thinking declines.

Guest: Stephen L. Norris, Co-founder/ Former President, The Carlyle Group

Segment 2: Wall Street Embraces Sovereign Wealth Funds

Sovereign wealth funds, which act as a country’s investment arm, have long been investing money gained through exports or from the sale of commodities such as oil. With $1.4 trillion in foreign-exchange reserves and the pool growing by more than $1 billion every day, China casts a giant’s shadow over the global financial markets. In May 2007, China Investment Corp or CIC, with a price tag of $3 billion, took a 9.9% stake in private equity titan Blackstone Group. The recent credit crisis has left several Wall Street heavy-weights financially strapped for cash. It created more opportunities for sovereign wealth funds. In December 2007, Morgan Stanley received a $5 billion injection from CIC. It joined the ranks of Citigroup, UBS and Bear Stearns, which all have received infusions from foreign players in recent months. Economists argue that investments by sovereign funds are important to the U.S. economy, providing capital to firms and supporting the dollar. At the same time, the funds have faced plenty of criticism.

Guest: Robert Sherretta, President, International Investors, Inc.