After months of watching sovereign-wealth funds from the Middle East and Singapore have all the fun, cutting big deals to help prop up Wall Street’s flimsy balance sheets, China Investment Corp. is back in action.

China’s sovereign-wealth fund had been sitting on the sidelines since it bought a $3 billion stake in Blackstone Group’s initial public offering in June. And it has been licking its wounds ever since. With the stock hit hard by the credit crunch, CIC has a a paper loss of about 21%, or about $630 million.

As criticism of that deal mounted at home, China deal makers snickered at how CIC paid a high price for its lack of deal savvy. So CIC turned to less-sexy pursuits, like hiring overseas staff and external money managers to farm out the $67 billion set aside for overseas deals.

Now it has splurged in buying as much as a 9.9% stake in Morgan Stanley. The $5 billion investment meets at least one key CIC goal – beating the sovereign-wealth fund’s cost of funding. China’s finance ministry wants the fund to return a minimum of 5% a year to cover the cost of bonds it issued to fund the agency. (CIC has an agreement with the Finance Ministry to protect CIC from foreign-exchange fluctuations.)

Morgan Stanley is guaranteeing a 9% annual rate of return for CIC between now and August 2010, when CIC’s investment converts to shares. That will give CIC a nice 4% premium — and maybe enough to cover the losses on the Blackstone bet.