Asia to the rescue? With Wall Street bleeding billions and booming Asian economies hoarding stacks of cash, it would seem to make sense for Asia to help the U.S. financial industry out of its fix. So far, though, it is not happening.
Burned by the flop of previous investments in U.S. finance, China, the richest new player in Asia, is sitting on the sidelines of the current crisis. Instead of rushing to snap up distressed Wall Street assets, its leaders are looking with growing concern at their own, increasingly troubled economy.
China's central bank is worried enough that it cut its key interest rate on Monday for the first time in six years, abruptly jettisoning its year-long worries about rising inflation.
To help shore up the stock market, which has already fallen 69 per cent since last fall, the government said yesterday that it will scrap the stamp duty on share purchases. It will also direct an arm of its sovereign wealth fund to buy up shares in state-owned banks to reinforce confidence in their stability.
News reports yesterday said the troubled U.S. investment bank Morgan Stanley was in talks with China Investment Corp. to sell a stake to the Chinese fund, which acquired a 9.9-per-cent equity stake in Morgan last December.
But it was unclear whether the link would go ahead, and as the Wall Street disaster spreads day by day, Asian confidence in American assets appears to be plunging.
That is bad news for the U.S. economy, because Chinese savers have in effect underwritten American consumers for years. China and other booming Asian economies have taken some of their massive earnings from their exports to North America and reinvested them in U.S. Treasury bills and other safe instruments. That has helped keep U.S. interest rates low and Americans spending.
With a staggering $1.8-trillion (U.S.) in foreign exchange reserves, China has been emerging as a huge potential pool of investment capital - a pool that could be a lifesaver for undercapitalized U.S. firms in a time of crisis.
But well before the current meltdown, Chinese firms had begun to shy away from U.S. investments. CIC, the busiest Chinese investor on Wall Street, took a bath on its $3-billion investment in the private equity giant Blackstone Group. Its $5.6-billion investment in Morgan Stanley now looks ill-timed, too. Similarly, shares of Britain's Barclays PLC have fallen sharply since the state-owned China Development Bank agreed in July, 2007, to take a stake.
Bloggers in China have called attention to the embarrassing failures, criticizing the government for wasting China's money on Wall Street as the country's huge social needs go unmet.
Other Asian investors have also shied away from Wall Street. Korea Development Bank backed off from taking an interest in Lehman Brothers after complaints from regulators and the press, who seem richly vindicated now.
It is still possible that some brave Asian investors may go bottom-feeding for battered U.S. assets. Singapore's Temasek Holdings, a government-owned investment fund, is said to interested in opportunities. Temasek has done better on Wall Street than many Asian investors. It stands to gain from Bank of America's takeover of Merrill Lynch & Co. because of special protections it secured when it took a stake in Merrill last December.