US banks cool their ambitions in the Chinese market

Các ngân hàng Mỹ nguôi dần tham vọng tại thị trường Trung Quốc - Ảnh 1. — Lujiazui Financial Center in Shanghai, China

According to Nikkei Asia on May 27, some major banks in the US are affected by the reality of tensions between the world's two leading economies, making expansion in China increasingly risky, even though this market was previously considered a great business opportunity.

The idea has changed

Banks are starting to consider reducing staff in the region, as Washington and Beijing continue to wage a trade war that has spanned two US presidential terms, leading to regulations and sanctions from both sides.

“The idea used to be to gain a foothold and then grow the business, and even if you had to invest a lot now, you would make more and more profits over time. But that calculus has changed,” said David Williams, a former Merrill Lynch banker in Hong Kong who now runs his own firm.

US banks Goldman Sachs and Morgan Stanley are considering cutting staff in Asia-Pacific, according to a Bloomberg report. Accordingly, Morgan Stanley is considering reducing 7% of its investment banking team in the region.

The belt-tightening comes more than five years after a trade war between the US and China that began under the administration of former US President Donald Trump and has continued into President Joe Biden's term.

Under pressure from additional regulations and the threat of sanctions on business in China from both governments, the trade-off of risk and return may be too unbalanced for banks that have long wanted to expand into the Chinese economy.

The lucrative IPO market for Chinese companies to list on New York exchanges has all but ground to a halt, after plans to list Didi, China's top ride-hailing company, in 2021 hit a snag.

Many factors influence

Continued friction over accounting oversight from the US government could spur further delistings, and Beijing is said to have pressured Chinese companies to reject the use of major international accounting firms domestically.

Meanwhile, the Biden administration is moving closer to issuing an executive order to screen foreign investment in certain sectors in China.

Observers say attitudes in Washington are becoming less friendly to investing in China, as politicians have yet to change their stance toward America's biggest strategic rival.

China’s strong growth has also changed. Disappointing economic data released this month has prompted major banks in the US and elsewhere to lower growth expectations for China’s ongoing post-Covid-19 recovery.

Retail sales and industrial production rose year-over-year and month-over-month in April, but were still below forecasts. Industrial production rose just 5.6% year-over-year, compared with expectations for a near-11% gain.

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