There are things happening in the world of finance which are worth watching, all related to the changing shape of the global system with China moving further and further into its own independent orbit. Let’s start with investment banks and VC funds. JP Morgan announced it is hiving off its China operation, making it separate from its international and US mothership. This is probably related to the increasing problems with the gradually stricter oversight of foreign investment, and all measures of auditing and review of China companies, and any operational and data flow issues that relate. Investments made by JP Morgan International presumably require a reasonable degree of transparency on the progress of an investment and that is becoming increasingly problematic. The consequence of that, again presumably, is that less foreign money is going to be interested in coming into China. if you don’t have transparency and oversight on the state of investments and the operations of companies in which you invest, why would you want to invest?
Then comes Sequoia, the most high profile international private equity investment operation in China the past couple of decades, which has had huge successes with investments in some of the absolute top private companies that have changed China, and in a way the world. Sequoia is also in the process of changing its arrangements so that not only China, but also India and Southeast Asia Sequoia operations are separated from Sequoia international. This has presumably the same impact of making the funding of Sequoia in China almost completely domestic, and very likely largely state funded. It also makes it less likely that foreign money will want to use the Sequoia channel to invest in high potential China companies. Interestingly, the new India-Southeast Asia branch of Sequoia is apparently happy with this arrangement because it separates it from the perception and actual problems that seem increasingly attached to Middle Kingdom investment.
Some Canadian pension and other investment funds have announced they are reducing their proportional exposure in the China market and a number of other big players, including Blackrock seem to be in the process of reducing their staffing and operation in the China investment sphere. Meanwhile, there is more and more talk of a BRICS currency to challenge USD global hegemony, but does it really stand a chance? Unlikely. And separating itself from the USD norm would surely not make China more attractive to foreign investment. What is the current state of FDI? It’s hard to say, the numbers are unclear. How much of it is round-tripped funds from the mainland to Hong Kong and back? We don’t know. And how important is foreign investment to maintaining China’s economic growth trajectory? Again, we don’t know. But it would appear that the Center is taking the view that it is not so crucial. It may be right, who knows.
Meanwhile, things in the big wide world are moving. Trump has been indicted, the first US President ever to face federal criminal charges, and the Ukraine counter-offensive appears to be underway. Both have implications for the situation here in various ways. It’s all a dynamic landscape.
Have a great weekend.