The China Investment Corporation, or CIC, is a newly created sovereign wealth fund created to invest a portion of the large trade surplus enjoyed by the Chinese. A sovereign wealth fund is either partly or fully owned by a country, and funded by the respective government; in this case China.
With much of China's cash surplus coming from trade, they've been under pressure for some time to invest it around the world - the reason they created the fund in September, incorporating $200 billion of the huge $1.5 trillion they have available to invest in the fund.
The CIC has paid $5 billion for a stake in Morgan Stanley (MS), which was looking for an infusion of cash, as they had to writedown $9.4 billion in subprime mortgage losses recently.
Along with the value of the cash, Morgan Stanley has also brought themselves a deal which should put them at the top of the line for any investing or underwriting needs China has. That will be a very lucrative deal in the years ahead for Morgan Stanley. It may not be officially guaranteed, but it has to be assumed.
While China has set aside $200 billion in the fund, only $60 billion of that is set aside for foreign investment, with the rest being earmarked for investment in domestic Chinese banks. Even so, it's not as easy as it sounds to wisely spend $60 billion.
The initial investment by CIC of $5 billion buys them a 9.9 percent stake in Morgan Stanley.
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