U.S. critics uneasy about China's investment goals

By Rachelle Younglai and Jim Wolf

WASHINGTON (Reuters) - The head of the U.S. Senate Banking Committee on Wednesday said he wanted more details about China's plan to buy a stake in investment bank Morgan Stanley (MS.N).

China agreed to pay $5 billion for a 9.9 percent stake in Morgan Stanley, the latest position taken by a government-run fund in a major U.S. bank battered in the subprime crisis.

"I need to know more about the specifics of this deal, including whether a (national security-related) review is warranted, before coming to any conclusions about this matter," Christopher Dodd, a Democratic presidential hopeful from Connecticut, said in a statement.

In November, Abu Dhabi agreed to pay $7.5 billion for a 4.9 percent stake in Citigroup (C.N), the biggest U.S. bank.

While some U.S. lawmakers welcomed Morgan Stanley's deal as a way to shore up the investment house, critics expressed unease about China's longer term objectives.

"We don't know what motivates the Chinese. They have a higher propensity for mixing politics and economics," said Jeff Fiedler, a Democratic-appointed member of the U.S.-China Economic and Security Review Commission. The panel was created by Congress in 2000 to advise lawmakers on China policy.

"The Chinese don't have a track record," Fiedler said.

The bipartisan commission likely will examine Chinese investments such as the one in Morgan Stanley next year.

"One question is whether, at some point, these sovereign wealth acquisitions or investments by Chinese government-controlled banks or companies can lead to influence in or control over U.S. companies related to national security," said Larry Wortzel, the commission's incoming chairman.

There is no specific threshold that triggers a national security review by the Committee on Foreign Investment in the United States (CFIUS). But companies are more apt to submit their deals to avoid being pulled in later by the Treasury Department-led committee for national security concerns.

Legislation was passed in July to strengthen the oversight of acquisitions of U.S. companies by foreign firms.

CFIUS, an inter-agency committee that includes the secretaries of the Treasury, Homeland Security and State, is currently rewriting its rules under the new law.

William Reinsch, another Democratic-appointed member of the U.S.-China panel, said it may be better for China to invest its dollar surpluses in the United States than elsewhere.

Others said the Morgan Stanley deal was good for U.S. financial markets.

"This agreement will provide capital for Morgan Stanley and thus strengthen one of New York's premier companies," said Sen. Charles Schumer, a New York Democrat, who had questioned another deal that would give Dubai a piece of the Nasdaq Stock Market (NDAQ.O).