Five big US banks ‘drawn to strong economic performance like moths to a flame’, increased exposure to China by 10 per cent to US$78 billion last year

Goldman Sachs led US banks ploughing billions of fresh cash into China last year, undeterred by political turmoil as the world’s second-largest economy further opens its US$50 trillion financial market.

The bank’s “cross currency outstandings” rose 33 per cent to US$17.5 billion last year in China, covering a broad array of cash and financing to companies and government entities, according to an annual filing. Together with Citigroup, JPMorgan Chase, Bank of America and Morgan Stanley, the five big US banks had US$77.8 billion in exposure, up 10 per cent from 2019.

China’s financial markets are a potent lure for the world’s biggest banks, with billions in profits on the line in investment banking and wealth management. But they also face an opaque regulatory environment and a tense political climate that has deteriorated over the past years and that is unlikely to see major improvements under the Joe Biden administration.

The banks are “drawn to strong economic performance like moths to a flame”, said Brock Silvers, chief investment officer at Kaiyuan Capital.

Europeans banks are also keen to boost investments. London-headquartered HSBC Holdings is increasingly pinning its future to Asia, with plans to invest at least US$6 billion across the region, including China. Credit Suisse Group is seeking to gain full control over its securities venture and plans to double its headcount and revenue in the world’s fastest growing major economy. UBS Group also wants to double its China footprint in three to five years, and is seeking to deepen control over its Chinese securities unit.

But challenges abound. Foreign banks have to navigate a murky regulatory system. Despite China allowing them to apply for full ownership of their partnerships a year ago, none of them have yet been able to secure that. They also have to battle with uncertainty – as was the case when Ant Group’s initial public offering was derailed days before its scheduled trading debut, putting millions in fees at risk.