“Over-consumption and a high reliance on credit is the cause of the U.S. financial crisis,” said Zhou Xiaochuan, governor of the Chinese central bank. “As the largest and most important economy in the world, the U.S. should take the initiative to adjust its policies, raise its savings ratio appropriately and reduce its trade and fiscal deficits.”

This kind of lecture was a deviation from past meetings, which were dominated by U.S. calls for China to better manage its fiscal policies. However, the global financial turmoil that has emanated from the collapsing U.S. housing market has left the United States without a pulpit on which to stand.

“One result of the crisis is that the U.S. no longer holds the high ground to lecture China on financial or macroeconomic policies,” Eswar Prasad, a senior fellow at the Brookings Institution, told the Financial Times. “This may actually help turn their relationship into a more equal partnership with less posturing on both sides.”

Indeed, U.S. Treasury Secretary Henry Paulson, who in the past used summits like these to press Beijing to open its financial system and appreciate its currency, was noticeably more humble in representing the United States yesterday.

“International cooperation and coordination have been robust and we appreciate the responsible role China has played in the crisis,” he said.

Meanwhile, Wang Qishan, vice premier and leader of the Chinese delegation called on the United States to “take the necessary measures to stabilize the economy and financial markets as well as guarantee the safety of China’s assets and investments in the U.S.”

Wang’s remarks followed those of Lou Jiwei, chairman of China’s $200 billion sovereign wealth fund, China Investment Corp. (CIC), who said Wednesday that his firm lacks the confidence to invest in the United States, particularly U.S. financial institutions.

“Right now we don’t have the courage to invest in financial institutions because we don’t know what problems we will put ourselves into,” Lou said at a conference in Hong Kong. “My confidence should come from government policies. But if they are changing every week, how can you expect that to make me confident?”

CIC has lost about $6 billion of the $8 billion it invested in Morgan Stanley (MS) and The Blackstone Group LP (BX) last year. More importantly, however, China last month overtook Japan as the largest holder of U.S. government debt. And according to the Financial Times, officials have privately admitted that they are concerned about the value of the holdings.

Concerned with China’s overexposure to the United States, central bank governor Zhou said policymakers should no only address the country’s slowing economy, but “restructure the development model” and prepare “for a worst-case scenario,” the FT reported.

However, Chinese officials also say that any large-scale unwinding of U.S. holdings would be counterproductive, as the value of U.S. bonds and the dollar would subsequently plummet.

Source: China Blasts U.S. Economic Policy, Expresses Doubt in Financial System

Still mindful of losing about $6 billion of the $8 billion CIC invested in Morgan Stanley (MS) and Blackstone last year, chairman Lou Jiwei not only bluntly rejected the notion of putting the government’s money into banks outside of its homeland, but did so citing an overwhelming fear.

“I don’t dare to invest in financial institutions now,” Lou, said today (Wednesday) at a conference in Hong Kong, Bloomberg reported. “The policies of the developed nations on these institutions are not clear. Until they are clear, I don’t dare to invest in them. What if they go bust? I will lose everything.”

The timing of Lou’s remarks has to be intentional, as government officials are about to enter its fifth round of continuing economic-focused dialogue with U.S. Treasury Secretary Henry Paulson. And he wasn’t the only high-profile person in China who trashed the health of the U.S. economy, which officially entered a recession earlier this week.

“American consumption, to be quite blunt about it, is toast, and when the consumption bubble goes that’s a big problem for this region,” Stephen Roach, chairman of Morgan Stanley Asia Ltd., said at the same conference. “There is no country in this region that is not either slowing or in recession right now because the world’s biggest end market for its exports is in serious trouble.”

One can’t help think Roach is overlooking the facts that Morgan Stanley was one of CIC’s biggest losing investments, and that China followed the United States’ lead last month in announcing a $582 billion economic stimulus.

That stimulus money will largely go to infrastructure projects – low-income housing, water and energy projects, airports, disaster relief and new railroads. [Editor's note: Money Morning recently identified five way investors can profit from China's stimulus.]

Ironically, those projects will be the focus of the United States’ next stimulus plan when President-elect Barack Obama takes office in January.

With little exposure to the mortgage-backed assets responsible for the meltdown of the world’s financial system, and billions being poured into infrastructure, China could come out significantly ahead of the West when the global economy finally rebounds.

But even with  $1.6 trillion in foreign currency reserves, China still lacks the firepower to bail out the rest of the world.

“China can’t save the world,” Lou told Xinhu. “It can only save itself.”

Source: China Slams Western Financial Firms

No timetable or total dollar value for the deal was given. The magazine report was picked up by the Reuters wire service, and by other U.S. media outlets, such as Forbes.com.

To smooth the way for the share purchase by Bank of America, Central Huijin Investment Co. Ltd. – the investment arm of the People’s Bank of China that’s run by the Ministry of Finance – has asked China Construction Bank to audit its third quarter results using international accounting standards.

Caijing, an influential Chinese-language business-news publication, said it did not know how many shares that Bank of America intended to buy. Construction Bank is already 11% owned by BofA. As part of its strategic-investing agreement with Construction Bank, BofA has had the option to increase its stake at an agreed-upon rate of 1.2 times the China commercial bank’s book value, Caijing reported.

Construction Bank’s net asset per share jumped 13.26% from a year earlier to 30 cents (2.05 yuan) during the first nine months, according to the lender’s unaudited third quarter results.
China Construction Bank (CCB) is a state-owned, full-service commercial bank that primarily provides corporate and personal banking services. Additionally, the group offers wealth-management, credit-card and stock-brokerage services. It focuses on two key areas:

• Individual banking services, including deposit services, personal loan, long-credit-card services, long card services, housing system reform finance, foreign-exchange services, securities agent and gold business related services.
• And corporate-banking services,  which include corporate e-banking, deposits, credit business, services for government agencies, services for non-banking financial institutions, international settlement, international financing, fund settlement and fund custody services.

With its headquarters in Beijing, CCB employs about 298,000 people. It recorded revenue of about $19.07 billion in the fiscal year that ended in Dec. 2006, a jump of 17.8% from 2005. The net profit was $5.83 billion in fiscal 2006, a decrease of 1.6% from 2005.

Central Huijin Investment Co., established in 2003, is the investment company owned by the Chinese government. Central Huijin was created to act as the centralizing structure through which the government of China can operate as a majority shareholder of the country’s so-called “Big Four” banks, all of which, obviously, are state owned.

However, Central Huijin does not own shares in the smaller joint-stock commercial banks, as those which are largely owned by China’s local governments. The “Big Four” in China are:

• China Construction Bank Corp.
• Industrial and Commercial Bank of China.
• Bank of China.
• Agricultural Bank of China (PINK: ABGEF, ABGEY).

Central Huijin Investment Co. was acquired from China’s State Administration of Foreign Exchange by the state-operated China Investment Corp. (CIC) for roughly $67 billion. A so-called “sovereign wealth fund” (SWF), CIC is responsible for managing part of China’s record $2 trillion in foreign-exchange reserves. With $200 billion in assets under management, CIC is actually the fourth-largest sovereign fund in the world.

China Investment Corp. officially began operations in Sept. 2007. However, it actually bought a $3 billion stake in U.S. private equity player The Blackstone Group LP. (BX) in June 2007. And it bought a 9.9% stake in Morgan Stanley (MS), worth about $5.5 billion at the time, in December 2007.

Caijing, the independent, Beijing-based magazine that broke the BofA story, is a financial publication in that’s devoted to coverage of companies in China. The title actually means “Finance and Economics Magazine.” Caijing says its mission is to have an “independent standpoint, exclusive coverage and unique perspective.”

By most accounts, it’s been succeeding.

The Wall Street Journal called Caijing “The Leading Finance Publication in China,” while Wikipedia said the magazine’s “unique perspective and sharp writing have led to it receive enthusiastic responses from financial industry experts and casual individual investors alike.”

The magazine’s knack for exposing the darkside of the financial world has helped it to establish itself as an independent, “must-read” publication. Other publications have tried to copy its approach and style – and have fallen short. Caijing is China’s only magazine that has continued to strengthen its reputation solely through investigative reporting.

Source: Bank of America Seeks to Boost Stake in China Construction Bank, Influential China Biz Magazine Reports

Bank of America Seeks to Boost Stake in China Construction Bank, Influential China Biz Magazine Reports

It’s a stupid question.

1. China already owns a huge chunk of our national debt. It has accumulated $1.5 trillion in its foreign exchange reserves. At one point last year, it was adding $1 million a minute to its vaults. The U.S. already depends on China using that money to buy our bonds. It keeps our interest rates down. This by itself is more than enough power over our economy.

2. So far, the China Investment Corporation (CIC) – the name of its sovereign fund – has made investments totaling $200 billion. That’s a pretty big number. But only $60 billion of it is earmarked for foreign investment. And the U.S. will only get a small part of that. In other words, the numbers aren’t scary.

3. It’s invested $5 billion in Morgan Stanley. Oops. And $3 billion in Blackstone. Double oops. Maybe it’s not Americans that should be asking whether the Chinese should be investing billions into our companies, but the Chinese who should be asking whether they should be investing so much into assets falling in price.

Besides Chinese money, there are petrodollars, drug money, money from terrorist states and other suspect sources making their way into the global and U.S. economy. This is nothing new.

In a worst case scenario, can Chinese money exit all at once from U.S. companies – creating economic chaos? Can these small shares in very big companies lead U.S. companies into nefarious anti-U.S. activities?

No and no.

It reminds me of the paranoia surrounding Japan in the early 1980’s when they were buying some of our most cherished real estate. It’s true that Japan was (and is) an ally and China is a country where in some areas we cooperate and in some we compete. And in other areas we manage to cooperate and compete with them at the same time. In other words, it’s complicated.

U.S. companies have invested a great deal of money and technology into China. By the way, wouldn’t it be easier for the Chinese government to sabotage those investments on their own turf rather than pulling off something in the U.S.? And now, China is returning the favor – more with its money than technology.

I’m all for it. Anything that gives China more of a stake in our economy and our biggest companies doing well is fine by me.

What’s worrying me isn’t what they do with the $60 billion. It’s how they grew their foreign exchange reserve so fast. Our appetite for imports has made China a ton of money and has saddled the U.S with a huge debt.

A South Korean pension fund – the fifth largest in the world – just said it will stop buying Treasuries. Not being able to finance our huge debt is going to get us in the end, not China’s U.S. investments.