BlackRock is setting up a Chinese fund business. JPMorgan Chase may spend $1bn to buy control of its Chinese money-management venture
industry the rupture between China and America continues to grow. Will Uncle Sam force a sale of TikTok, a Chinese-run app popular in the West ? Can Huawei survive the embargo? Is Apple shifting its supply chains from China? Yet in one part of the global economy the pattern is of superpower engagement, not estrangement: high finance. BlackRock, a giant asset manager, has got the nod to set up a Chinese fund business. Vanguard, a rival, is shifting its Asian headquarters to Shanghai.
Western, and in particular American, capital markets still reign supreme on most measures. Derivatives are often traded in Chicago; currencies in London. American firms dominate the league tables in asset management and investment banking. The White House has sought to weaponise America’s pre-eminence, by pushing Chinese firms to delist their shares from New York, for example. But if anything the trade war has shown the growing muscle of China in finance.
They have been knocking on the door for 30 years with little success. Now they are betting that China is serious about welcoming foreign finance. With its current-account surplus set to fall over time, or even fall into deficit, it needs to attract more foreign capital. The terms of access have improved. China is at last allowing Western firms to take control of their mainland operations and has made it easier for fund managers to buy and sell mainland securities.
There are risks. China could bend the rules to protect local banks and brokers. Corruption is a hazard: in 2016 JPMorgan Chase was fined by American regulators for giving jobs to well-connected Chinese “princelings”. Worries over human-rights abuses may intensify. And navigating America’s sanctions regime will be tricky—global banks active in Hong Kong, such as, are already under pressure to cut off some Chinese officials there.
China’s ability to attract Wall Street firms during a bitter trade war shows the clout its capital markets have. But to become a financial superpower it would need to create its own global finance and payments infrastructure and make the yuan more freely convertible. The leading Chinese firms have a tiny presence abroad and most of China’s trade is invoiced in dollars, making it vulnerable to American sanctions.
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