By Selena Li, Scott Murdoch and Kane Wu
HONG KONG/SYDNEY (Reuters) – More U.S. financial firms may withdraw from China, divesting local units to minimize risks or suspending expansion plans due to concerns about geopolitical tensions during Donald Trump’s presidency, industry executives and analysts said.
Mainland China was a lucrative market for Wall Street investment banks and major U.S. asset managers to expand in the decade leading up to the pandemic as the world’s second-largest economy posted double-digit economic growth.
However, these companies now face the risk of even more trade tensions between Beijing and Washington under a new US administration, with their Chinese units already reeling from faltering economic growth and regulatory changes that have hit revenues.
Trump, who retook the White House in a landslide victory on Wednesday, has proposed tariffs on Chinese imports of more than 60%, ending China’s most-favoured-nation trade status.
There are also concerns about what measures he could take to clamp down on capital inflows from the U.S. to China and U.S. financial firms working with some Chinese companies, analysts said.
Research director Joe Jelinek of Singapore-based consultancy Kapronasia said Trump would likely take a tougher stance on China, increasing regulatory risks for U.S. financial firms operating there.
New or increased tariffs and capital restrictions could discourage Wall Street firms from expanding into China as they face heightened scrutiny and potential compliance issues, he said.
“Rather than Beijing closing its doors, it is likely that US companies themselves would reconsider their China strategies to mitigate these risks,” Jelinek said, adding that this could lead to a pullback or postponed investments.
A senior executive at a Chinese-licensed entity of a major U.S. financial company told Reuters that his company had gone through several rounds of “risk management meetings” at its headquarters in the months leading up to the election.
As a result of Trump’s return to the White House, the company is now focused on turning its China business into a “self-sustaining” independent operating entity, said the executive, who asked not to be named due to the sensitivity of the matter .
“It will be a very bumpy road for American financial companies doing business in China as Trump returns to the White House,” he said. “‘De-Americanize’ has now become a guiding principle.”
RETHINKING STRATEGY
Some Wall Street firms have already shrunk their Chinese footprints as a slowing economy and tighter regulatory scrutiny of corporate deals and fundraising have reduced the market’s revenue potential in recent years.
The five largest U.S. investment banks – Goldman Sachs, Morgan Stanley, JPMorgan, Bank of America and Citigroup – will earn $454 million in revenue from Chinese investment banks in 2024, according to data from Dealogic.
That figure is higher than full-year revenue of $276 million in 2023, but well below the peak of $1.6 billion in 2020, the data show. Geopolitical tensions, even during Joe Biden’s presidency, led some companies to reconsider their China strategy.
US asset manager Van Eck dropped plans to set up shop in China in 2023 due to tensions between China and the US, sources told Reuters, while Vanguard withdrew from its Chinese joint venture business the same year.
More than 10 U.S. law firms have closed all or one of their Chinese offices since last year, according to media reports and public announcements. Law firm Mayer Brown said it would divest its Hong Kong operations this year, while Dentons split from its mainland Chinese teams last year.
Christopher Beddor, deputy China research director at Gavekal Dragonomics, said the immediate focus of U.S. financial firms would be on Trump’s tariffs and how Beijing responds to them.
“I think we are facing the most uncertainty in US-China relations in years,” Beddor said. “There is simply a much wider range of plausible outcomes for virtually every area of US-China relations under Trump.”
However, another senior executive from the China unit of a U.S. financial firm said some Wall Street firms may want to take advantage of Beijing’s continued push to give foreign companies greater access to financial markets.
“You don’t stop working because you’re afraid of car accidents. They happen often, but we want to make sure we don’t exaggerate,” said the general manager, who also asked not to be named due to the sensitivity of the situation. matter.
(Reporting by Scott Murdoch in Sydney, Kane Wu, Selena Li in Hong Kong; Editing by Sumeet Chatterjee and Sam Holmes)
