09/17/2020

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Wall Street Banks Charge Forward in China



Pushing Ahead Despite Geopolitical Jitters

Several of Wall Street’s most influential financial institutions are working on deals in China despite the fact that tensions are rising between Beijing and Washington.

Over the past two years, the Chinese government has changed regulations to allow foreign companies to enter its financial market more easily. More restrictions were loosened as part of the phase-one trade agreement between the US and China, which President Trump signed in January of 2020. These changes include giving more business licenses to American companies and making ownership restrictions less rigid. Wall Street has been eager to take advantage of the opportunity to move deeper into the Chinese market.

Major US Players Make Moves

Last month, BlackRock (BLK) was given permission to launch a wholly-owned asset management arm in China. BlackRock was given six months to set up the company, with registered capital of $43.9 million. A few days later, Vanguard, a competing asset manager, announced that it would move its Asia headquarters from Japan and Hong Kong to Shanghai.

Meanwhile, Citigroup (C) became the first US bank to get a domestic fund custody license from the China Securities Regulatory Commission. JPMorgan Chase is making plans to pay $1 billion to buy out its Chinese partner in a mutual fund business in the country.

On the Path to Becoming the World’s Second Largest Funds Market

Some parts of China’s financial market may be easier to break into than others. The country’s mutual fund industry is just beginning to grow. Goldman Sachs estimates that only 7% of China’s household assets are in equities and mutual funds, whereas in the US that number is about 32%. More than 60% of Chinese people’s assets are in property, and about 20% are in cash and deposits. Some analysts expect that by 2023 China will replace the UK as the world’s second-largest funds market. US banks are eager to be a part of this growth.

It should be noted that China’s four state-owned banks are still the largest in the world. The Chinese tech companies, Alibaba (BABA) and Tencent (TCEHY) have a tight hold on mobile payment systems in the country. Some are saying that China was waiting for domestic and government-owned companies to achieve this kind of dominance before it allowed foreign financial institutions to enter its markets.

Investors will be watching to see if US financial institutions’ strategies for expanding in China are successful. Even as tensions between Beijing and Washington escalate, US companies are still finding inroads into the financial sector of the world’s second-largest economy.


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