The Great Wall Street of China

2007 saw a record $414 billion of foreign investment in American companies and assets. Sovereign wealth funds, which are investment funds or companies owned by governments, accounted for over $21.5 billion of that investment in American companies last year. The concern is that supposedly free markets could be manipulated by state sponsored companies for geo-political goals.

“This is a phenomenon that could be called the growth of state capitalism as opposed to market capitalism. The United States has not ever been on the receiving end of this before.” said Jeffrey Garten of the Yale School of Management.

State-run China Investment Corp. followed up it’s investment in the private equity firm Blackstone Group last June with a $5 billion deal with Morgan Stanley in November that can be converted into a 9.9% stake to Morgan Stanley down the road. CIC closed out the year with an investment of $20 billion in it’s own commercial lender, China Development Bank on New Years Eve.

Following the August mortgage implosion that exposed Bear Stearns’ glut of bad loans, the brokerage firm jumped on the Orient Express and cut a $1 billion mutual investment deal with a Chinese soveriegn wealth fund, Citic Securities Company.

Citigroup and Merrill Lynch have also gone the foreign route, raising over $30 billion from a lengthy list sovereign wealth funds including Singapore’s Temasek Holdings, Korea Investment Corp., Kuwait Investment Authority, Mizuho Corporate Bank, the Government of Singapore Investment Corp., Saudi Prince Alwaleed bin Talal, and the world’s largest sovereign wealth fund - the Abu Dhabi Investment Authority.

The ongoing write down of bad debt will only increase the foreign investment stake in the U.S. financial sector as the fire sale of U.S. assets continues. Does it strike anyone else as ironic that the consumer attitude of mortgaging the house to pay the bills has now been adopted by Wall Street?