Not so long ago, Wall Street banks were recapitalizing insolvent Chinese state-owned financial institutions as well as leading companies in the state-controlled economy.
Now the money is beginning to flow the other way, as evidenced by the $5 billion bailout of Morgan Stanley (nyse: MS - news - people ) by a Chinese government-owned fund, China Investment Corp., that was announced Wednesday.
Exactly a decade ago, Morgan Stanley became the first Wall Street bank to gain a foothold in China, taking a 34% stake in the first investment bank set up in China, the government-controlled China International Capital Corp., known as CICC.
In subsequent years, despite well-publicized power-sharing problems between Morgan and CICC’s state controllers, it has benefited from the relationship, securing a leading advisory role in billions of dollars worth of offshore initial public offerings by Chinese companies. It also has invested in the country through a private-equity fund.
Morgan Stanley is the top player in China’s fast-growing investment banking business with a 10.4% market share, garnering $690 million in net revenue in the seven years since 2000, compared to its No. 5 position globally with a 5.9% market share, according to Dealogic.
With its capital injection from China Investment Corp., or CIC--the new government agency responsible for investing $200 billion of the country’s $1.4 billion in foreign currency reserves--the one-way money flow from Wall Street has been reversed.
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