Wall Street Cuts Back on China Investments Amid Recession and Xi Jinping Regime Fears

Wall Street Investors Scaling Back Investments in China
Factors Contributing to Reduced Investments in China

One of the most influential investors on Wall Street, including firms like Bridgewater Associates led by Ray Dalio and Carlyle, which have traditionally maintained strong investment links with China, have recently scaled back their investments in the country. This strategic shift is attributed to several factors, including China’s extraordinary real estate downturn, concerns regarding an economic recession, and uncertainties surrounding President Xi Jinping’s leadership.

The Wall Street Journal (WSJ) reported on the 7th (local time) that, according to investment information company Preqin, Wall Street’s private equity funds have raised an average of $100 billion annually for investment in China over the past decade. However, the funds raised this year until the end of November were only $4.35 billion.

Large hedge funds, including Bridgewater, have recently significantly reduced their holdings of China-related stocks. Bridgewater liquidated or reduced its stakes in about 36 Chinese companies in the third quarter alone, including electric vehicle startup Xpeng and PDD Holdings. As of the end of September, the value of the company’s stakes in Chinese companies had decreased by 60% compared to last year. Large private equity fund Carlyle has stopped raising new funds related to China. Mutual funds like Vanguard and VanEck have also withdrawn or suspended their investment plans in China.

The decrease in Wall Street’s investment, which has been active in the Chinese market, is another blow to the Chinese economy, facing the exodus of global companies and concerns about an economic slowdown. The funds related to Chinese stocks and bonds held by global institutional investors decreased by a net $31 billion until October this year. This is the largest net outflow since China joined the World Trade Organization (WTO) in 2001.

Concerns and Uncertainties About China
National Security and Data Restrictions

The reasons for this include concerns about China’s economic downturn and the uncertainty of President Xi’s regime. The WSJ reports that an unprecedented real estate slump in China is frightening investors with hundreds of billions of dollars in debt from Chinese developers. Additionally, as President Xi focuses on national security, the government restricts data access and continues to seize and investigate foreign companies. Josh Wolfe, the managing partner of Lux Capital, explained his decision from five years ago not to invest in China, attributing it to indications of increasing state control and the Chinese government’s use of technology for social surveillance. He also predicted the ongoing withdrawal of Wall Street capital from China.

Political Influence on Wall Street

While most global companies have been wary of business risks in China, Wall Street has been betting on the potential benefits of investing in China. They invested in Chinese startups, managed Chinese institutional funds, and listed Chinese companies on the New York Stock Exchange to make a considerable profit. However, the WSJ also reported a shift in the atmosphere after U.S. hardliner on China, Mike Gallagher, confirmed a different stance. House of Representatives and chairman of the U.S.-China Strategic Competition Special Committee visited New York in September to persuade Wall Street figures to stop investing in China. Reportedly, Mike Gallagher expressed surprise that Wall Street had already started withdrawing investments from China, noting that there was no need for active persuasion.

Mixed Views on Withdrawal

However, not everyone is pulling out of China. Amy Celico, a partner at consulting firm Albright Stonebridge Group, headquartered in Washington, said, “Wall Street has been very slow to exclude China (as an investment target),” and “it will continue to be slow.”

Wall Street firms that have started to reduce investment are also taking careful steps not to upset Chinese authorities. At a banquet for entrepreneurs during the Asia-Pacific Economic Cooperation (APEC) summit held in San Francisco last month, key Wall Street figures, including BlackRock CEO Larry Fink and Dalio, the founder, were all present, and they all gave a standing ovation at the end of President Xi’s speech. The WSJ reported that this two-track approach to China is also why most Wall Street executives who met with Special Committee Chairman Gallagher in September asked to keep the meeting private.

By. Seul Ki Cho