In 2021, Wall Street, which is fond of Chinese growth stocks, suffered a heavy setback.
In an article reported in September 2021 by Reuters, China accelerated the pace of opening up its financial sector to U.S. firms after years. However, Beijing’s new policy moves have rattled some foreign investors. They include crackdowns on internet companies, for-profit education, online gaming, and property market excesses as China promotes a “common prosperity” drive to ease inequality.
On July 7th of last year, CNBC reported that China’s most powerful companies, including Didi, Alibaba, and Tencent, were under scrutiny as the country cracked down on domestic companies that list on U.S. exchanges.
China has a list that restricts or bans foreign investment, called the “Foreign Investment Negative List,” and the authorities update the list annually. The list includes prohibited sectors such as education, news media, and rare earth minerals.
Foreign investments in sectors such as publishing, nuclear power stations, and telecommunication are also restricted in China.
As Reuters reported on December 27th last year, according to the National Development and Reform Commission, “foreign investors must not participate in the operation and management of the companies.” In accordance with the laws governing locally-listed firms, their shares will be limited to 30%.
However, Wall Street continues to love the Chinese market because the Chinese government had opened up the financial market to foreign investors, especially in 2020, when the restrictions on foreign shares in the financial, insurance, and brokerage sectors were lifted.
Even when several U.S. politicians have been calling for U.S. companies not to invest in China over concerns about national security and human rights violations, Wall Street corporations are instead tightening their ties.
And despite political tensions and last year’s regulatory crackdowns by Beijing, banks and money managers are desperate to compete on the Chinese mainland.
Bloomberg reported that JPMorgan now can operate the investment banking business when taking complete control of a Chinese securities joint venture last year. Morgan Stanley now applies for five new banking licenses in 2022, while Goldman Sachs has doubled its workforce. Citigroup also applied for investment banking and securities trading permits, increasing its workforce in the country.
In CNBC’s article on February 15th, global strategist Andrew Garthwaite and his team wrote in the late January report, “Monetary policy is being eased in China while elsewhere it is being tightened” and “economic momentum is turning up.”
However, Cameron Brandt, EPFR’s Director of Research, said that the latest wave of buying came mainly from overseas institutional investors, not from retail investors whose interest in China has been waning since early last year.
MarketWatch reported on February 15th Bridgewater, the world’s number one hedge fund has recently increased its bets on Chinese companies, adding to its holdings in Alibaba, Baidu, and Azera, among others.
Since 1993, Bridgewater has managed the Chinese government’s funds, including about 5 billion dollars for sovereign wealth fund China Investment Corp. and China’s State Administration of Foreign Exchange (SAFE). For its part, Bridgewater has filed disclosures with the SEC showing that its China funds issued overseas have exceeded 34 billion yuan (5.38 billion dollars) in total assets.
Bridgewater also boosted their stakes in other Chinese companies, going from 8% to 38% in the fourth quarter of 2021.
BlackRock, the world’s largest asset manager, with US$10 trillion in assets under management, was granted permission to set up a wholly-owned mutual fund in China last year. The company sees China as the most important market for expanding its business.
According to Bloomberg, BlackRock raised 6.7 billion yuan (1 billion dollars) for their first China mutual fund last year.
However, not all money management firms are excited about their opportunities in China: Vanguard Group stopped its plans to apply for an investment management license last year.
As put by Alexander, managing director at Z-Ben Advisors Ltd. in Shanghai, “China has become an extremely difficult business opportunity to navigate.”