Two large U.S banks that have made big bets on China are now taking steps to deepen ties in spite of the fraying relationship between the two countries.
JPMorgan Chase's private bank moved this year to
Meanwhile, China's
The two megabanks' moves come at a time when Washington is pushing U.S. companies away from China.
In the latest of a series of escalations between the world's two largest economies,
The White House's latest action is less likely to impact banks than it is private equity and venture capital firms that have stakes in China's efforts to develop semiconductors and other microelectronics. But it signals a hawkish tide on China that JPMorgan and Citi are now swimming against.
In June, JPMorgan held its annual China summit in Shanghai. Some 3,000 business leaders discussed topics like China's consumer comeback, technology supplies and health care.
"Hopefully, it was a turning point in what is reopening a dialogue that can from time to time become very difficult. It's our responsibility to keep that flowing," said Mary Callahan Erdoes, CEO of asset and wealth management at JPMorgan, who helped lead the event.
In a recent interview, Erdoes recalled comments that former U.S. Secretary of State Henry Kissinger made at the summit, calling for a continuing dialogue between individuals in the United States and China. When the longtime statesman visited China in the 1970s with President Richard Nixon, he helped restart diplomacy after decades of hostility with China's Communist government.
"It is incumbent on everybody — business people, politicians, personal individuals, philanthropists — to keep the dialogue open and flowing between these two countries because we have a great responsibility to do so for the sake and the safety of the rest of the world," Erdoes said in comments that she attributed to Kissinger. "Sometimes governments are not in the front seat of doing that — and all of us need to do that as private citizens."
Last week's White House order — which the Treasury Department will be taking comments on prior to drafting rules that it expects to enforce next year — marks the first time that the United States has placed substantial investment restrictions on U.S. firms overseas, even as it follows several
The executive order will prohibit venture capital and private equity firms from making investments that bolster Chinese efforts to develop semiconductors and microelectronics, quantum computers, and certain artificial intelligence technologies that have the potential to enhance China's military capabilities. It will also require firms to alert federal authorities if they invest in certain sensitive technologies.
The White House order came one day after the Commerce Department said that imports of goods from China fell 25% during the first half of 2023. One big reason for the decline is that
Some U.S.-based banks are looking to reduce their exposure to China — not only because of geopolitical factors, but also because the Asian country's
The head of Goldman Sachs' private equity business in Asia
Meanwhile, Bank of America, citing a downtick in Chinese dealmaking, told
And after Silicon Valley Bank failed in March, its new owner, First Citizens BancShares, largely cut its Chinese operations,
JPMorgan is moving in the opposite direction, though. Its private bank is keen to invest more in China, despite macroeconomic headwinds. Erdoes noted that the country's middle class continues to grow.
The largest U.S. bank by assets gained full control of its China mutual fund joint venture, China International Fund Management Co., after securing regulatory approval in March.
"Those kinds of things are really exciting to us," Erdoes said. "I think they're going to be a tremendous addition to how we think about adding value into our clients' accounts."
After three years of hosting its China summit virtually, JPMorgan held the event in person this year. Erdoes expressed pride in what she called JPMorgan's "convening power," adding that "people count on" the bank to bring business leaders together.
Like JPMorgan, Citi is looking to expand its footprint in China, notwithstanding its decision to wind down
The $2.4 trillion-asset Citi, which declined to comment for this article, is one of several financial services companies that are in the process of
"U.S. financial institutions have been trying and trying and trying to break into the Chinese market, because it's a big market," said Jonathan Gafni, a former national intelligence officer and head of U.S. foreign investment at the law firm Linklaters. "It's a very attractive market."
The extent to which that could change depends in part on the contents of the Treasury Department's forthcoming rule, among other uncertainties. Some Republicans have already said that the restrictions should go into effect sooner and affect more areas of investment.
"It could go a lot further," Gafni said. "I think this was intended to be a measured first step."
U.S. banks could soon be caught in the crosshairs. A recent
"Forms of economic engagement with China once considered acceptable and even encouraged are now increasingly regarded by policymakers as collusion with a foreign enemy," Wildau said. "If this view becomes more widely accepted, the role of U.S. financial institutions in facilitating foreign investment to China in a wide range of sectors and asset classes could become a future target of restrictions."
