China Builds Stakes in Top U.S. Firms
February 9, 2010 Leave a comment
David Barboza and Keith Bradsher
Flush with cash despite the global economic downturn, China’s sovereign wealth fund quietly snapped up more than $9 billion worth of shares last year in some of the biggest American corporations, including Morgan Stanley, Bank of America and Citigroup.
Although most of the stakes were small, China Investment Corp., the government’s $300 billion investment fund, now owns stock in some of the best-known American brands, including Apple, Coca-Cola, Johnson & Johnson, Motorola and Visa.
The detailed list, which contained holdings totaling $9.6 billion as of Dec. 31, was disclosed Friday in a filing with the U.S. Securities and Exchange Commission; it lists stakes only in companies traded in the United States.
The filing offers a glimpse of how China is trying to diversify its more than $2 trillion in foreign currency holdings with stock, rather than investing almost entirely in U.S. Treasury bonds and other debt securities issued by governments and by government-sponsored enterprises like Fannie Mae.
Prime Minister Wen Jiabao of China and other officials have repeatedly expressed worry about how the country’s holdings of U.S. Treasury securities could be hurt by inflation or by mounting U.S. debt. By buying the securities of international companies, China is trying to spread its fast-growing wealth more widely. It is also seeking to acquire strategic stakes in companies that could feed its hungry economy with a wide range of commodities.
C.I.C., already one of the world’s largest sovereign funds, was formed in 2007 with about $200 billion. It now has assets of nearly $300 billion and, according to state-run news media, is expecting another large injection of funds.
A spokeswoman for C.I.C., which is based in Beijing, did not return e-mail messages or phone calls seeking comment. But analysts said the filing showed that the fund had invested only a small portion of its $300 billion in American stocks, and the fund seemed to be following a cautious strategy to diversify globally after initially having put its biggest investments into shoring up the capital of Chinese banks.
“This is still a relatively small amount compared to the total size of the fund,” said Chang Chun, a professor of finance at the China Europe International Business School in Shanghai.
The sovereign wealth fund got off to a rocky start in 2007 and early 2008 by acquiring a $3 billion nonvoting stake in the American private equity firm Blackstone and paying another $5 billion for a 9.9 percent stake in Morgan Stanley.
Shares of both companies plummeted in 2008 during the financial crisis, leading to a storm of criticism directed at C.I.C. But analysts say the fund performed well in 2009, particularly because it was buying aggressively as the market recovered.
Exactly when C.I.C. bought the shares of various companies was not disclosed in the filing. And C.I.C.’s acquisition of nonvoting units of Blackstone and its early stake of preferred shares in Morgan Stanley are not listed in the filing. The Blackstone and Morgan Stanley stakes are not listed, apparently because they are not traded equities.
The filing indicates that C.I.C. owns about $19 million worth of Bank of America stock, close to $30 million worth of Citigroup shares and about $333 million worth of shares in Visa, as well as holdings in various index funds.
The fund’s largest listed holdings were $1.7 billion worth of shares in Morgan Stanley and nearly $650 million worth of shares in BlackRock, the New York money management fund.
The Morgan Stanley stake was acquired last June, when the investment bank issued about $2.2 billion worth of common shares to help repay the U.S. government under the Troubled Asset Relief Program; C.I.C. acquired about $1.2 billion worth of shares at that time.
Some U.S. politicians in both parties have been nervous about China’s growing financial reach, and particularly wary that China might seek political influence in the West commensurate with its corporate stakes. Wariness in Washington flared four years ago when Congress discouraged Cnooc, a state-owned Chinese oil company, from buying Unocal.
Most sovereign wealth funds, with the exception of Norway’s, disclose few details about their holdings. But C.I.C. made its list available for the first time on the S.E.C.’s form 13F, which is filed quarterly by institutional investors and mutual funds in the United States.
Ben Simpfendorfer, an economist at Royal Bank of Scotland, said the Chinese sovereign wealth fund’s decision to disclose its holdings could limit concerns about secrecy in government holdings.
“This should help reassure politicians that Chinese sovereign wealth funds can take minority positions responsibly,” he said.
C.I.C.’s holdings outside the United States are substantial and growing. In Canada, it owns a $3.5 billion stake in Teck Resources, a mining and resources company listed in the United States, and a $1 million stake in Research in Motion, the maker of BlackBerry mobile phones.
The sovereign wealth fund has also been buying small stakes in Australia’s biggest banks and paid $646 million last autumn for a stake in Noble Group, a diversified commodities company based in Hong Kong with operations around the world in industries like iron ore mining and sugar mills.
Executives whose companies have accepted investments from C.I.C. tend to defend it as apolitical.
Richard S. Elman, the founder and chairman of Noble, said last month that C.I.C. executives had been businesslike in their approach to the investment.
“They are hugely commercial, and they want results,” he said. “They do not interfere in the day-to-day operations.”