Why US business expansion is powering ahead in China, despite tensions

Major US financial institutions are expanding in China, despite strained US-China relations and Beijing’s tightened control over the economy
And, whatever their differences, both Washington and Beijing seem to welcome the expansion efforts

Neal Kimberley

Published: 9:30pm, 17 Aug 2021

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US-China relations remain strained. Beijing has every intention of further extending regulatory control over key sectors of the economy. This might appear an inhospitable environment for Western investors. But the bottom line for them, when it comes to China, is that the chance to enhance the bottom line will always prevail.

Given the extent of policy differences between Beijing and Washington, it might seem generous to merely characterise US-China relations as disharmonious.

Just last week, it was revealed that US Defence Secretary Lloyd Austin had still not been able to speak to his Chinese counterpart.

A diplomatic compromise may well be devised to solve this specific problem but it is a lot harder to see how China and the United States will be able to bridge the gap over events in Hong Kong and Xinjiang, let alone Taiwan. But political differences aside, business is business and major US firms continue to look to expand in China.

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On August 6, leading US bank JPMorgan Chase became the first foreign firm to gain approval from the China Securities Regulatory Commission (CSRC) to take 100 per cent control of its securities joint venture on the mainland, the US firm having previously increased its stake in the business to 71 per cent in November.

“China represents one of the largest opportunities in the world for many of our clients and for JPMorgan Chase,” Jamie Dimon, the bank’s CEO, said in a statement. “Our scale and global capabilities give us a unique ability to help Chinese companies grow internationally and also support global investors as they expand into China’s maturing capital markets.”

It is also worth noting that the US bank had separately received approval last year to take full control of its futures business in China, besides reaching an agreement to buy out its asset management joint venture partner on the mainland.

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These are big commitments by a major US financial institution to the Chinese market, even though China-US relations remain rocky.

Nor is JPMorgan alone. Other major US financial institutions are also making new investments in China. BlackRock won a licence to open a wholly foreign-owned mutual fund company in China in June. The CSRC has now also granted approval for Fidelity International to do so.

That doesn’t mean US firms are blind to the geopolitical situation or the risks of doing business in China. Indeed, speaking from JPMorgan’s perspective, Dimon was quite candid about such matters in an August 4 interview with Maria Bartiromo on the Fox Business channel.

Emphasising that the US bank does business in 100 countries, Dimon made the point that JPMorgan does that business “under the laws of those lands and under the law of America as they apply”.

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Additionally, “When we do something in a foreign country, we follow American foreign policy,” Dimon said. “… American foreign policy wants a JPMorgan to properly expand to serve American companies, other companies and to be part of that. At the point in time when they decide they don’t want us to do it, we simply will not do it.”

US-China relations might be rocky, but based on Dimon’s comments and the continuing efforts of major US financial institutions to build new business in China, such efforts must be in tune with current US foreign policy.

Equally, while Beijing has deep differences with Washington on many issues, it is exhibiting a willingness to entertain US financial institutions expanding into China even as it seeks to expand regulatory control over the wider Chinese economy.

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That doesn’t mean to say such US business expansion into China can be done lightly or without risk.

“We know what the rules are in China,” Dimon told Bartiromo. “That does not mean I like them. We just sign with our eyes open.”

Beijing’s recent regulatory clampdown has had an adverse impact on the stock market values of some companies. One, Didi Global, had its US initial public offering in June, in which JPMorgan was a lead underwriter.

When asked in the Fox Business interview how much money JPMorgan had lost on the Didi Global deal, Dimon’s response was telling. “It’s life in the fast lanes,” he said.

Investing in China may well be life in the fast lanes, and Beijing-Washington relations will remain complex, but the fact is that business opportunities in China are just too big for Western investors to ignore.

Neal Kimberley is a commentator on macroeconomics and financial markets