Why Wall Street Supports China Despite Beijing’s Tighter Grip


This year has been troubling for Chinese trade. The ruling Communist Party pursued the private sector industry by industry. Stock markets took a big hit. The country’s largest real estate developer on the verge of collapse.

But for some of the biggest names on Wall Street, China’s economic prospects look brighter than ever.

BlackRock, the world’s largest asset manager, has urged investors to increase their exposure to China by up to three times.

“Can China be invested?” asked JP Morgan, before answering“We think so.” Goldman Sachs”Yeah,” more.

Their rise in the face of increasing uncertainty has baffled Chinese experts and drawn criticism from a wide spectrum of politics, from progressive investor George Soros to members of Congress. Republicans. Mr. Soros, BlackRock’s stance “tragic mistake” this is likely to “lose money” for its clients and “harm the national security interests of the United States and other democracies”.

But Wall Street sees opportunity. Even as Beijing tightens its control over business and the economy, global investment firms greater opportunities Serving Chinese companies and investors.

At the peak of market sales in late July, Fang Xinghai, vice-president of China’s securities regulator, called executives from BlackRock, Goldman Sachs and other firms to a meeting to try to ease investors’ unease over Beijing’s pressures. the note I reviewed.

About 20 days later, regulators approved BlackRock’s application to offer mutual funds in China. At the same time, a BlackRock executive said The Financial Times reported that China is underrepresented in the portfolios of global investors and in global benchmarks. The firm recommended that investors increase their allocations by two to three times.

BlackRock said in a statement that its global clients “could benefit from portfolio diversification that includes more informed asset allocation to China,” adding that Wall Street’s expansion in China is consistent with the policy goals of the American government.

Goldman Sachs and JP Morgan declined to comment.

Wall Street is now a increasingly lonely voice It is arguing for further engagement with China. both american political parties They are calling for a tougher stance. Positions have hardened other countries, more. The broader business community has become more unstable: it thinks China still has a large market, but trade, intellectual property and the government support of local businesses complicated their traditional support.

Wall Street may be right on the rise. China has defied bearish forecasts in the past. Despite the party’s authoritarian rule in other matters, it has long helped growth by bringing some laissez faire to the economy.

But China’s chief leader, Xi Jinping, is putting the country in a more uncertain period. The party’s leadership is tighter and more authoritarian than before. It has not largely abandoned its market principles as it needs economic growth to maintain its legitimacy, but is dealing with tighter controls. The long-term effect is far from clear.

This summer, China’s private sector was beaten the hardest in decades by the Communist Party. With a few immediate orders, Beijing brought the internet industry to its knees, sharply restrained businesses that offer after-school tutoring and drove some property developers to the threshold of default.

Didi, China’s dominant ride-hailing company, a Wall Street darling It raised more than $4 billion when it went public in New York in late June. Share price almost halved after Chinese government moved to limit his work Two days after its listing, it left many investors, including American funds, in limbo.

“I don’t think we can use spreadsheet-type thinking to get a glimpse of China in the 2020s and beyond,” said George Magnus, a China researcher at Oxford University. The country “is experiencing a sharp leftward jolt in politics,” he said, creating a “deep contradiction between the desire for political control and the desire for good economic and innovative results.”

“I think the first one,” added Mr Magnus, “has to win.”

Some of Wall Street’s biggest names disagree. Ray Dalio, founder of hedge fund Bridgewater Wrote He said in late July that people in the West should not interpret Beijing’s crackdowns as “Communist Party leaders showing their true anti-capitalist streak.” Instead, the party wrote that it believes these moves are “better for the country, even if shareholders don’t like it.”

The relationship has been good for Bridgewater so far. Mr. Dalio’s firm has raised billions of dollars from Chinese clients such as the China Investment Corporation, the sovereign wealth fund, and the State Foreign Exchange Administration, which manages the country’s foreign exchange reserves. (Bridgewater declined to comment.)

It’s a balance the business community has played with China for a long time: say nice things to Beijing, lobby home on behalf of China, then seek access to markets and capital.

Goldman Sachs became the first foreign bank to seek full ownership of a securities business in China in December. Describing China as “one”, BlackRockundiscovered” Market, hired An ex-regulator to manage the Chinese business. So many global financial firms are growing in the country that there is a talent war.

Wall Street firms argue that, despite regulatory risks and slowing growth, China is too big to ignore and equities are too undervalued to be missed.

Many investors listened. U.S. mutual funds and exchange-traded funds, primarily investing in China, had net assets of $43 billion at the end of August, an increase of 43 percent, or $13 billion, from the prior year, according to Morningstar.

Many companies and investors have made a lot of money from China over the years. And despite the cold talk between the two sides, they still share extensive commercial ties. China manufactures iPhones and buys iPhones. Same with Chevrolets. While China’s economic growth has slowed, it is still stronger than most. This will not change overnight.

But even as Wall Street applauded China, the balance between engaging with Beijing and confronting Beijing was broken. And American lawmakers are starting to examine those ties. Elected representatives from both the Democratic and Republican Parties expressed their concerns about American funds investing in China. US government pension fund stopped He plans to invest in Chinese stocks last year after growing criticism that the move could work against national security goals.

Matthew Pottinger, deputy national security adviser to former President Donald J. Trump, warned He said recently in Foreign Affairs that these institutions “hold on to self-destructive habits acquired through decades of ‘engagement,’ and this approach to China has led Washington to prioritize economic cooperation and trade above all else.”

Compared to Wall Street’s confidence, China’s business Moody about what happens next. The wealthiest people are promising to spend millions, sometimes billions, on charities and other projects to stay in line with Mr. Xi’s goal of “common prosperity”.

Access to top Chinese policymakers isn’t working its magic as well as it used to, either. Stephen Schwarzman, chairman of private equity giant Blackstone, has long-standing relationships with Chinese leadership. He is closely tied to the country’s economic czar, Liu He. Still, his company had to cancel a $3 billion deal to buy real estate developer Soho China in September, as they failed to get regulatory approval. Blackstone declined to comment.

Wall Street firms are apparently betting that China’s past successes will continue. They have a long history, but it’s worth remembering what they constantly tell their customers: Past performance is not necessarily indicative of future results.



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