BlackRock, Defying Soros Warning, Breaks New Ground in China
(Bloomberg) -- For the world’s biggest money managers, China’s trillions in investable assets speak louder than any warnings of a “tragic mistake” from billionaire George Soros.
About a day after Soros called out BlackRock Inc. in a Wall Street Journal op-ed, the $9.5 trillion asset manager said it drew in 6.7 billion yuan ($1 billion) for its first China mutual fund, closing fundraising days ahead of schedule so it could invest sooner. It had just launched the debut product last week, about two months after becoming the first foreign firm allowed to start a wholly owned mutual fund business in the world’s second-largest economy.
The rush to scale up in China goes beyond BlackRock. Fidelity International won its license from the China Securities Regulatory Commission last month, even as President Xi Jinping redoubled efforts to crack down on businesses from real estate to tech. Invesco Ltd., an early entrant with the first China-U.S. fund management joint venture in 2003, has said it wants to increase its China assets by more than 40% to $100 billion by 2023.
For now, these investing giants are showing no signs of retreating from China, where the mutual-fund business is still nascent and growing with the country’s middle class.
“It’s more complicated than Soros makes it out to be,” Taisu Zhang, a Yale Law School professor who specializes in contemporary Chinese law and politics, said in a phone interview. He added that U.S. asset managers have shown a level of comfort with scaling up in China despite government constraints. “They’ll put up with those things if it means getting access to what will be one of the most important economies over the next several years.”
In response to Soros, New York-based BlackRock pointed to the $600 billion in trade between the two nations, and to China’s need for greater retirement savings.
“The United States and China have a large and complex economic relationship,” a BlackRock spokesperson said in an emailed statement. “Through our investment activity, U.S.-based asset managers and other financial institutions contribute to the economic interconnectedness of the world’s two largest economies.”
To Soros, those intertwined fortunes are part of the problem.
The two geopolitical superpowers are “engaged in a life and death conflict between two systems of governance: repressive and democratic,” he wrote in the op-ed. Investing billions of dollars in China now will likely “damage the national security interests of the U.S. and other democracies.”
The spat underscores the skepticism money managers are navigating as they jockey for dominance in China, where household wealth is estimated to increase to $35 trillion by 2023. Pressure is mounting in Washington: The Securities and Exchange Commission will demand that Chinese companies trading in U.S. markets provide more information to investors about political and regulatory risks, as well as shell-company structures.
The growing backlash and scrutiny could prove a headache for some of the most well-known financial institutions.
JPMorgan Chase & Co. is the top foreign asset manager in China, followed by UBS Group AG, Invesco, BlackRock, Schroders Plc and Fidelity, according to an April report from Shanghai-based consultant Z-Ben Advisors. The rankings are based on a scoring system that incorporates money managed for Chinese customers onshore and globally, as well as outside investments overseen in China.
Meanwhile, Neuberger Berman, Van Eck Associates, AllianceBernstein and Schroders are all waiting for regulatory approval to set up fully owned public-fund companies like BlackRock and Fidelity. None of the firms have said that they’re deviating from those plans.
“We are deeply committed to the China market and we look forward to serving domestic investors,” Rajeev Mittal, managing director of Fidelity International’s Asia Pacific ex-Japan business, said in a statement.
JPMorgan declined to comment. Invesco didn’t reply to requests for comment.
China began opening its financial sector in 2020, rolling back a previous restriction that required foreign money managers to have a joint venture with an onshore firm in order to sell funds in the country. BlackRock had been issuing mutual fund products with Bank of China Investment Management.
The standalone mutual fund, the BlackRock China New Horizon Mixed Securities Investment Fund, will be managed by Alex Tang and Shan Xiuli. It attracted more than 111,000 investors, the company said.
“We are committed to bringing long-term investment opportunities for Chinese investors,” said Chi Zhang, BlackRock Fund Management’s general manager.
When asked in July how tensions between the U.S. and China might affect business, BlackRock Chief Executive Officer Larry Fink said the firm has remained consistent in its commitment to expanding in the nation.
“In all my conversations this is considered to be a good thing,” Fink said in an interview with Bloomberg, “because as China expands its markets we want China to have a more open market system.”
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