Chinese plan $2 billion move into U.S. mortgage market

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Flush with cash from a $585 billion stimulus plan that experts say is working well, China's $200 billion sovereign wealth fund is planning to make inroads into the U.S. mortgage market.

According to Reuters, the China Investment Corp. (CIC) plans to invest up to $2 billion in toxic U.S. property loans. The move is no surprise. Chinese investors have been snapping up depressed properties in America, lured by rock-bottom prices in many markets. Some even toured the U.S. in groups looking for investment opportunities.

"The Chinese government is always trying to seek a more ideal way to invest in U.S. assets rather than purely buying U.S. government bonds all the time," a source told Reuters.

The Chinese are investing through the U.S. government's $1 trillion Public-Private Investment Plan (PPIP) that would combine government and private capital to scoop up as much as $40 billion in toxic assets weighing down the balance sheets of financial services firms. The value of these securities plunged when the real estate bubble burst. Even though the market has rebounded somewhat, prices continues to be soft in urban areas. A survey by the National Association of Realtors released last week showed more than 80 percent of urban areas reported lower home prices than a year earlier, according to Reuters.

The PPIP may be a safer bet for the Chinese since the debt is rated "Triple-A" by at least two agencies. Moreover, the PPIP debt is guaranteed by the Federal Deposit Insurance Corp. The Chinese are expected to pick an investment manager by the end of the month.

Should this happen, it would be a vote of confidence from the Chinese who have been worried about the U.S. economy and have said their thirst for U.S. debt was not unquenchable. Whether the largest buyer of U.S. debt and top supplier of manufactured goods will buy more American goods remains to be seen.

If the Chinese are looking at residential real estate, might they also be interested in commercial property, a market that experts worry may be on the verge of collapse? Moody's estimates that property values have plunged 35 percent since October 2007, making it difficult for cash-strapped owners of skyscrapers, malls and office buildings to refinance their debt.

And if there is money that needs to be lent, the Chinese are more than willing to do it -- at the right price.

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