"China Won't Lend to U.S. Banks" Story Untrue

Hong Kong's South China Morning Post reported on March 25 that domestic Chinese banks had been told to stop lending to U.S. financial institutions to shield the country from the unfolding financial crisis. ("Mainland lenders ordered to halt interbank deals with US firms," Sept. 25, 2008, Hong Kong time.)

Dow Jones Newswires later refuted the story in an article based on an interview with an official from the China Banking Regulatory Commission. ("China Regulator: Report On Halting Lending To US Banks Untrue," Sept. 24, 2008, 11:22 p.m. E.T. )

"I've never heard of this. It's ungrounded," the official told Dow Jones Newswires.

China's central bank is one of the world's biggest buyers of U.S. Treasury bonds. Chinese government-owned financial institutions also hold significant quantities of U.S. equities.

China Investment Corp., for example, a $200 billion sovereign wealth fund, owns large stakes in both the private equity firm Blackstone Group and Morgan Stanley, according to the Financial Times.

As stock prices have slid, they have lost a great deal on both these investments. Because of this, China has resisted buying further stakes in U.S. financial institutions, and has stayed on the sidelines while the U.S. financial crisis has expanded.

Chinese officials apparently don't want to be seen as investing "dumb money," the Financial Times reported ("Prudence guides China's outlook," Sept. 24, 2008).