China pursues foreign investment like an abusive lover, Plus Beijing blocks IPO risk reports & Qin Gang is ousted from office -- China Boss News 7.28.23
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What happened.
American private equity groups KKR, Blackstone, Carlyle, Warburg Pincus and Sequoia Capital last week attended a symposium aimed at luring back their China investments which have “virtually ground to a halt,” Financial Times reported.
Hosted by China's Securities Regulatory Commission, the symposium was the “first of its kind” and “part of [a] concerted effort to re-engage” with global investors, who seem to have lost the “appetite for China deals.”
But even if the firms would have preferred “specific incentives or guidance” to help them navigate China’s “faltering growth and unpredictable policymaking,” they got only requests for opinions about the economy, and questions on how “to smooth the way for Chinese companies to list overseas."
On the same day, China's Ministry of Commerce (MOFCOM) held a roundtable attended by representatives of foreign chambers of commerce and firms that, according to local state-owned media, “focused on the concerns and demands of enterprises,” while “help[ing] to interpret policies and regulations.”
Chen Chunjiang, an official with MOFCOM, specifically promised “to use the roundtable system” in order “to carry out regular exchanges with foreign firms and business associations” in an effort “to improve the transparency and predictability of policies, so as to provide a better environment.”
Why it matters.
How the worst abuse began
Investors still ache from China's "Big Tech" crackdown that began in late 2020. Many had gone all-in on innovative Chinese tech firms, like Jack Ma's e-commerce enterprise Alibaba and fin-tech affiliate Ant.
But that didn't stop Xi Jinping from suddenly - and very personally - teaching Ma a thing or two about “disorderly expansion of capital.” By the time it was over, China’s most recognized entrepreneur was in hiding, his companies all but nationalized, and investors had lost billions.
But that didn’t seem to matter enough for China bulls to become bears. Many tied themselves in knots to rationalize the attacks on China’s private Goliaths, in trying to convince themselves the State’s left hook was for the common good.
Aljazeera:
Alibaba’s revamp “feels like a continuation of the government restructure” of the tech companies and dismantling of the large monopoly businesses in China, said Jon Withaar, head of Asia special situations at Pictet Asset Management.
“We think this is likely a sign that we are moving closer to the end of the regulatory scrutiny on BABA and we would expect that the company moves back into the good graces of the regulators and policymakers after this.”
And when Xi’s zero-Covid policy was lifted, once the Chairman had obtained his norm-breaking third term in power and China’s economy started showing signs of systemic failure due to draconian and rampant, whack-a-mole lockdowns, lots of investors, including global banks, cheered the PRC on, touting it as ripe for recovery even as independent analysts said they were almost certainly wrong.
Ironically, it took a balloon to blow up even the most battered bulls’ confidence in China. But it wasn’t just any balloon.
“Save it for the suckers”
Last February, the world watched as the US outed and, then, downed a Chinese spy balloon off the coast of South Carolina. The now infamous “balloon incident” pushed back Secretary of State Antony Blinken’s visit to Beijing - a trip that many in China business had hoped would improve ties.
Discussing the economic implications at Georgetown University in May, Ambassador Craig Allen, President of the US-China Business Council, warned that the “impact was quite long-term,” and the incident had “happened at a very bad time.”
“February 24th is the anniversary of Russia’s invasion of Ukraine, and China’s support for Russia generally, and with regard to the kinetic conflict in Ukraine, is really coming under greater scrutiny. At the same time, the Administration is subtly shifting its Taiwan policy,” he said.
Since then, work has disappeared for large multinational consultancies outsourced to investigate investment opportunities after Chinese national security officials raided their offices.
And, last week, the US House Select Committee on the Chinese Communist Party informed several American venture-capital firms that they were under investigation for their investments into Chinese semiconductors, artificial intelligence and quantum computing technologies.
Still, few can escape the snowballing news that China’s economic recovery is on life support - including some of the biggest names on Wall Street who have downgraded China’s GDP forecast multiple times since January.
In an attempt to explain China's continued poor performance, Nomura economist Lu Ting listed three things that investors “got wrong.”
FT:
“The economic recovery fell short of expectations as people underestimated the negative feedback loop of the property sector meltdown, underestimated the lack of confidence due to the deteriorating external geopolitical environment and overestimated the rebound from post-pandemic revenge spending,” said Lu Ting, chief China economist at Nomura.
Foreign Policy deputy editor James Palmer stressed public confidence as “the biggest single factor in [China’s] faltering economy.”
“[W]hile the Chinese government has done its best to pretend that the lockdowns - and the wave of mass infection after the zero-COVID policy was lifted - never happened, they are burned into public memory,” he observed.
But, even as Chinese officials congratulate themselves for “vowing to build a "first-class, market-oriented business environment," while hyping new symposiums and “roundtable systems” full of needy promises made to global finance, there is an emerging consensus among China’s own business class, says New York Times’ Li Yuan, that Beijing’s charm offensive is little more than a display “for the suckers” and that “the country’s economic problems are rooted in politics.”
This Week’s China News
The Big Story in China Business
CHINA PROHIBITS IPO RISK REPORTS: The China Securities Regulatory Commission (CSRC) has told local finance lawyers "to refrain from including negative descriptions of China's policies or its business and legal environment in companies' listing prospectuses," Reuters reported on Monday.
How to dress PRC’s windows: In a “closed-door meeting” which “followed informal, so-called window guidance,” officials asked the advisors to omit "boilerplate risk disclosures," which usually discuss "China's changing economic, political and social conditions, as well as changes in government policies and regulations and trade tensions," news staff said.
End of IPOs for Chinese firms in US?: Craig Coben, former global head of equity capital markets at Bank of America, now managing director at Seda Experts, wrote in Financial Times that Beijing's pressure will make it "challenging for international banks to underwrite a share offering for a Chinese company in the US.”
“Listing a company in Hong Kong with disclosure that wouldn’t pass muster with the SEC creates reputational risks for these banks, especially if something were to go wrong after the IPO,” he said.
Accelerating financial decoupling: While Beijing’s new censorship of its companies IPO prospectuses does not bode well for Chinese firms who want new listings in the US, Chinese companies already on the exchanges are struggling to hold their places.
Passed in late 2020, the Holding Foreign Companies Accountable Act (HFCAA), authorizes the de-listing of businesses that do not comply with audit inspections, and Beijing has been ordering companies to hold back data for security reasons.
In other China business news
US CONSULTANCIES LOSE-OUT: Bain, McKinsey and Boston Consulting Group are struggling to attract new business in China after national security raids on their offices, Financial Times reported. Bain has been particularly impacted as Chinese authorities probe allegations that sensitive information was “passed to [it] from an outside expert hired through Capvision.”
“PAST ITS PEAK”: The age of “Chinese money … rippling across the rich world” has come to an end, Wall Street Journal’s Stella Yifan Xie and Jason Douglas say.
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