China’s ‘wolf warrior’ diplomacy was clearly exhibited to the Biden administration in Alaska. A confused Biden administration floundered around in shortage of words while a Chinese delegation thrashed the living daylights out of it. Now to make matters worse, Goldman Sachs, one of the biggest investment banks, is about to become the first foreign bank in China to have 100% ownership of its Chinese joint venture.
The foreign ownership limit was removed in the 2020 US-China trade agreement, allowing Goldman to buy out its Chinese partner. At the time, Goldman Sachs International CEO Richard Gnodde told investors that the bank could grab a lucrative share of an estimated $100 billion in potential revenue by mid-decade.
Goldman’s private wealth management unit is looking for wealthy urban professionals in China to advise on investments. Higher interest rates and a growing local currency have enticed foreign investors to pour capital into Chinese financial markets, inflating their dollar income.
“The investment banks are operating in politically much more treacherous waters than they were just a few years ago, given both the domestic political atmosphere and the continuing U.S.-China tensions. But as long as they can navigate the rough seas, they can make quite a bit of money,” said Andrew Collier, managing director at Orient Capital Research in Hong Kong. “Congress can put modest limits on the exposure of Western capital to China but realistically can’t close the door completely.”
During an unprecedented two-day summit in Alaska this past week, US and Chinese diplomats exchanged acrimony and insults in their first high-level meeting since President Biden’s inauguration.
Hundreds of billions of dollars in contracts and capital flows may be at stake if the business community adjusts to the Biden administration’s largely confrontational approach to a growing China.
According to Ryan Hass, a former Obama administration China expert, “China has tried to use Wall Street in the past to provide ballast in the relationship.” “The Chinese are remarkably confident in their ability to enlist the financial services sector and corporate CEOs to nudge the Biden administration in their desired direction. Although, in comparison to previous administrations, I expect China’s efforts to have less of an effect on Biden.”
According to a report by Rhodium Group and the National Committee on U.S.-China Relations, U.S. investors hold about $1.1 trillion in stocks and about $100 billion in bonds issued by Chinese companies, about five times what is captured in official U.S. statistics.
According to Goldman’s securities filings, the firm had extended $17.5 billion in funding to Chinese businesses and government agencies by the end of 2020, almost double the amount it had extended two years prior. The bank intends to increase its local workforce to around 600 people over the next five years.
Five years after Deng Xiaoping used Chinese tanks to quell pro-democracy demonstrations in Tiananmen Square, Goldman opened the first China offices in Beijing and Shanghai. In 2004, the bank formed a joint venture with Beijing Gao Hua Securities, in which foreign investors were allowed to own up to one-third of the company.
Goldman’s Chinese operation had lofty ambitions but mediocre results. According to securities filings, the bank’s entire Asia business provided just $1.1 billion of Goldman’s $28.4 billion net income over the last three years.
When he briefed reporters on the Biden administration’s new approach to trade policy last month, national security adviser Jake Sullivan singled out Goldman Sachs by name. But Sullivan didn’t lavish praise on a bank that has created treasury secretaries for both parties’ presidents and has long exercised as much power in Washington as it does in New York.
Sullivan’s remarks may have stung Goldman’s ego, but they didn’t derail the firm’s international aspirations. Despite the rebuke and the weakening US-China relationship, Goldman Sachs is on the verge of realising a long-held ambition: becoming the first foreign bank to own 100% of its Chinese joint venture.
Despite the election of a more traditional president, Goldman’s determined march into China demonstrates how Corporate America’s and the White House’s priorities continue to diverge. While China continues to look down upon the United States government, Wall Street is walking all the way to China with bundles of cash stuffed in their pockets.
