Wall St. Finally Gaining Access to China. But for how much?


For decades, American banks have been eager to expand their business in China, the world’s second largest economy. They finally find their way – just like a spiral corporate debt crisis threatens to shake up the country’s financial system, and China’s central government is taking a stronger hand with big businesses.

In July, Citigroup became the first foreign bank to receive approval. open a custody business In China, it essentially acts as a bank for Chinese investment funds. In August, JPMorgan Chase received permission from Chinese authorities to take full ownership of its investment banking and trading business in the country – a century after it opened its first store there. Goldman Sachs gets the green light for a similar initiative In October.

As the approvals came in, the message from Beijing was clear: it wanted US lenders to bring more foreign investors to China and help the Chinese buy assets abroad.

Excited that they no longer have to share profits with local partners for services like stock deals or advising companies, Wall Street banks rush to oblige. They want to broker more transactions, help Chinese companies raise funds and manage money for the country’s fast-growing mercenary class. total wealth China’s 100 richest people According to Forbes, it increased from $1.33 trillion a year ago to $1.48 trillion in 2021.

“Obviously, what we can do in China is largely determined by how the Chinese government allows us to work,” Goldman Sachs CEO David M. Solomon said in an interview last month. “We are encouraged that after a long time they have allowed us to control our joint venture.”

Still, he added, “The US-China bilateral relationship, the politics around China will be complicated.”

Wall Street banks are gaining ground as China prepares for a real estate crisis and its financial system begins to sway under the weight of years of debt-driven corporate boom. Property developer China Evergrande, with $300 billion in outstanding debt, has become the poster child for these issues.

Despite him narrowly avoided default In bonds last month, Evergrande’s precarious state is causing panic among other developers that could shake the wider Chinese economy. While debt crunch creates new banking opportunities, they also create unpredictability.

China is easing restrictions on foreign ownership of financial services companies as it has agreed to this as part of a trade deal it signed with the Trump administration. But Dick Bove, a senior banking analyst at Odeon Capital Group, said the country could easily ban these firms.

“Give him a year and have his financial problems sorted out,” Mr. Bove said. After that, “they won’t need American banks and they can kick them out.”

Banks must also consider the strained relationship between the US and China, even as their economies are deeply interconnected. China was America’s biggest trading partner According to the Office of the U.S. Trade Representative, $559.2 billion in goods changed hands between the two countries last year. It was the third largest market for exported US goods.

Despite the ongoing trade war that intensified in 2018 after President Donald J. Trump, the flow of goods and services continued. tariffs applied In a wide range of Chinese products. President Biden is scheduled organize a virtual summit He was on Monday with Chinese President Xi Jinping amid frictions over trade, cyber threats and Taiwan, among other issues.

geopolitical tensions involving Taiwan and worries military maneuvers turned into hostilities that would shake the financial markets, also created a weight in the minds of financiers.

Six senior Wall Street banking executives, who refused to speak publicly about some aspects of their jobs due to political sensitivities, said that while they welcome China’s latest steps towards financial opening, they are certainly aware that the Chinese government may cancel bank loans at any time. the right to do business. They noted that their firm has other bases in Asia, such as Singapore or Tokyo, should they need to move away from the mainland.

Bankers quoted from Beijing oppression Examples of other policy changes that could frustrate foreign businesses and investors are at tech companies, including ride-hailing giant Didi, internet giant Tencent, and e-commerce giant Alibaba. Mr. Xi’s “common prosperity” initiative to fill the country’s wealth gap has led to many businessmen raised at home on notice, is also a concern for foreign companies.

Last year, Chinese regulators canceled the initial public offering Ant Group, an internet finance company controlled by Alibaba co-founder Jack Ma. There are famous billionaires kept a low profile and other businessmen, he promised billions of dollars to charities.

Still, banks pay upfront. They take full ownership of joint ventures or find new business partners. JPMorgan and Goldman aim to expand their operations in China from insuring equity and debt offerings to advising on cross-border deals and establishing trading activities. Goldman also has affiliations with ICBC Wealth Management, a local player that gives some of ICBC’s 26 million personal and 730,000 corporate clients the chance to manage their money.

Slower than its competitors to build a footprint in China, Bank of America plans to apply for permits. establish a brokerage. Morgan Stanley is waiting for Chinese regulators to approve the increase in ownership of the Chinese securities company to 90 percent. The bank also aims to increase its stake in a fund management joint venture to 85 percent.

And asset management giant BlackRock, Raised $1 billion Three months after authorities authorized Chinese investors for the country’s first foreign-owned investment fund in September.

Citigroup focuses on building its asset management business. Citi’s head of global private banking, Ida Liu, said that while it has halted some consumer banking operations on the continent, the bank aims to double the headcount at its private bank in Asia and focus on serving wealthy clients, including China.

But the lender is watching Chinese policies “super closely” and has explained to clients that strained US-China relations could bring more volatility to their portfolios, Ms. Liu said in an interview in October.

US banks are also optimistic about the potential to sell financial products to China’s emerging middle class, which is seeking investments beyond real estate. About three-quarters of household wealth in China is dependent on property, and debt housing market seen as an increasing threat to the economy.

Wall Street’s enthusiasm for China is echoed by some of its biggest clients, including hedge funds, money managers, and other major American investors, hitherto undeterred by its shared welfare agenda and the Evergrande saga.

Ray Dalio, founder of Bridgewater, the world’s largest hedge fund, urged investors not to read the Chinese government’s actions as necessarily “anti-capitalist.” in media interviews and In a LinkedIn post in July, He said diversified portfolios should include investments in both the US and China.

Investors seem to be paying attention Kimberley Stafford, head of global product strategy at giant asset manager PIMCO.

“We see a lot of institutional investors in China holding their course,” Ms Stafford said last month. “This is perhaps an indication that allocations to China are sticky and have lasting power and that people are more into it in the longer term.”

Alexandra Stevenson contributing reporting.



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