On September 3, Xi announced plans for a new stock exchange in Beijing to serve “innovation-oriented” small and medium-sized companies as part of the campaign to boost onshore capital markets. It could indicate the safer sectors for investors to focus on. Details are scarce but analysts say the announcement emphasises a tough truth: it needs at least some foreign capital to build its businesses.
Whether the new bourse will help plug that hole remains unanswered. Well-established exchanges in Shenzhen and Shanghai means Beijing risks further dividing a limited domestic capital pool. It also poses a risk to Hong Kong, long the gateway for foreign investors seeking opportunities in China. “It has to be totally different, unique,” says ING’s Pang.
Whatever happens, BlackRock plans to continue to be involved in China and its assets – heavily. Its mutual fund recently launched its first fund in the country, raising more than $1bn from 110,000 investors.
In his annual letter to shareholders, chief executive Larry Fink dedicated a section to growing markets that was utterly focused on the Asian nation. “The Chinese market represents a significant opportunity to help meet the long-term goals of investors in China and internationally,” he said.
Soros, in response, was damning: “Earlier efforts could have been morally justified by claims they were building bridges to bring the countries closer, but the situation now is totally different.”
“The BlackRock initiative imperils the national security interests of the US and other democracies because the money invested in China will help prop up Xi’s regime, which is repressive at home and aggressive abroad.”
Soon, US investors may find that a decision is out of their hands. In June, Joe Biden, the US president, signed an executive order that prevents Americans from investing in a range of defence and surveillance companies. Legislation under consideration would extend bans further, restricting the flow of capital into China.
Despite a phone call last week between Xi and Biden, where the pair “discussed the responsibility of both nations to ensure competition does not veer into conflict”, according to the White House, investors elsewhere in the world find themselves caught once again between the world’s two superpowers.
For Rabobank’s Every, the sharp divergence between some of the biggest figures in the financial world is all the warning investors should need.
“If that doesn’t tell you that you should do some homework – rather than just saying, ‘well, I might pick up a few basis points here’ – then caveat emptor is all I have to say.”