As Wall Street stays bullish on China, the challenge is selling it to US middle and working class

Despite an all-fronts rivalry between China and the US, Wall Street has continued to double down on the world’s No 2 economy. In the latest development, Goldman Sachs said it had received approval from the China Securities Regulatory Commission to take full ownership of its Chinese joint venture Gao Hua Securities. This follows JP Morgan’s takeover of its joint venture in August to become China’s first securities firm wholly owned by foreign investors. The Chinese leadership has long remained in close contact with Wall Street bankers. They were invited to take part in restructuring China’s four biggest state-owned commercial banks in the early 2000s. Some of them have also acted as go-betweens for the US administration, including Stephen Schwarzman, co-founder of private equity firm Blackstone Group, and former Goldman Sachs senior executive Hank Paulson. George Soros, not BlackRock, is the one making a China blunder John Thornton, a Wall Street veteran, paid a six-week visit to China this summer and was given unprecedented access in Beijing to Han Zheng, one of the seven-member all-powerful Politburo Standing Committee, thus acting as an important backchannel for the two nations when official exchange slowed. Other than the deal with Gao Hua Securities, Goldman Sachs entered into a wealth partnership in May with Industrial and Commercial Bank of China, No 1 among its “big four” lenders, which will allow the US firm to draw on the savings of the bank’s Chinese customers. The same month, BlackRock also said it had received approval for a wealth management partnership with China Construction Bank. Wang Qishan, Chinese vice-president and former economic tsar, and Liu He, President Xi Jinping’s right-hand man on economic policy, have over recent years met senior executives of US companies, including Wall Street bankers, keeping communication lines open amid the trade war launched under the Trump administration. What Wang Qishan told old friend from US about Communist Party’s legitimacy Beijing also lobbied heavily for index provider MSCI to include Chinese A shares, or domestic stocks, in 2017. But US bankers now face a complex political climate, with the White House declaring that engagement with China “has come to an end”. Bilateral economic relations, once hailed as “Chimerica”, are under increasing scrutiny for national security amid never-before-seen risks of decoupling. Beijing’s dual circulation strategy to shift reliance from overseas markets to domestic consumption and its push for technological self-reliance have fuelled concerns regarding its pledge to open up further. While Chinese rhetoric in welcoming foreign investment has remained unchanged for decades, the reality has been complicated by moves to tighten regulatory control and the growing risks in its economy and financial markets. “The role of Wall Street as a stabiliser has diminished, as so much has changed in bilateral economic relations,” said Shi Yinhong, an international relations professor at Renmin University of China. “A stable relationship is in Wall Street’s interests, while they are well aware of changes in politics, economy and public opinion in the US. Their role to influence China policy has been limited.” Not only is the Chinese market of 1.4 billion people too big to ignore, the country’s consumers also have a large proportion of savings lying idle in bank accounts, and its stocks have been undervalued. Senior Commerce Ministry official Zong Changqing said foreign direct investment into China this year so far was better than expected, and was likely to surpass one trillion yuan this year. China attracted nearly 1 trillion yuan in foreign direct investment in 2020. Zong said on Friday that conditions to attract foreign investment had continued to improve, and foreign firms had been optimistic about the long-term prospects in China’s markets, though the reshaping of global industrial chains and the decoupling risks might continue to complicate China’s efforts to stabilise foreign investment. China last year lifted the 49 per cent cap on foreign equity holding in securities and fund management firms, in a key opening-up measure for its financial markets. And more than 10 foreign brokers have increased stakes in their Chinese joint ventures so far this year. Zhu Tian, a professor of economics with the China Europe International Business School in Shanghai and author of Catching Up to America, said Wall Street’s infiuence on the Washington inner circle would be limited. “It can play a messenger’s role to reduce misunderstanding and misconception to a very limited degree,” Zhu said. With US-China relations plummeting to their lowest point in decades and amid changes in the American political landscape, Wall Street bankers have increasingly been accused of gaining wealth at the cost of workers back home. US Senator Marco Rubio has accused Wall Street of helping to finance Beijing’s efforts to weaken and replace the US leadership, and said its bankers had only helped to enrich themselves in the short term by hurting Americans, which would be “national economic suicide” in the long term. US hedge fund tycoon George Soros in a recent opinion piece said calls – like those from BlackRock – for pouring billions of dollars into China were “a tragic mistake” that would worsen national security risks for the US. “It will certainly complicate the work of policymakers in Washington keen to see American business get on board with the Biden administration’s vision of ‘extreme competition’,” Nardello & Co, a risk consulting firm in the US, said in a research note. “Beijing, meanwhile, will be hoping that US financial institutions will help moderate Washington’s current foreign policy hawkishness, though the domestic political dividends of demonising Wall Street are likely to prove as irresistible to China hawks as Chinese savings are to BlackRock and Goldman Sachs.” Despite their ever-growing interest, foreign lenders account for a market share of only around 2 per cent in China’s banking sector. US industries have long expressed grievances regarding China’s market restrictions, state-controlled monopoly, inadequate intellectual property protection and growing scrutiny on national security grounds. Economic considerations, once the most significant stabiliser in China-US relations, have been outweighed by the forces of geopolitical and ideological confrontation. China tells Wall Street tech crackdown aims to ‘reduce social anxiety’ Li Cheng, director of the John L. Thornton China Centre at Brookings Institution, noted a change in public perception in the US, that doing business with China had served the interests of corporate America but not been great for the US middle and working classes. “There is a strong and shared incentive for both Beijing and Washington to focus on reducing the anxieties on America’s Main streets, not just Wall Street,” Li wrote in a recent article.