China Dreaming: CEOs still Target Expansion Plans Despite Frosty Receptions

Shanghai Cityscape

Its economy may be slowing and hostility toward foreign entrants may be on the rise. But that isn’t necessarily ending American CEOs’ China dreams.

To the contrary, JPMorgan CEO Jaime Dimon has just indicated he hopes the bank could open a 100%-owned subsidiary there, amid increasing signs the government is again warming to foreign investment.

Morgan Stanley CEO James Gorman, meanwhile, said that markets more generally are underestimating China’s continued potential and that he wasn’t very concerned by a recent downgrade of the country’s debt rating.

“77% of U.S. companies in China perceive the environment getting less hospitable.”

At present, offshore interests in Chinese companies are limited to 49%—a stricture that has sent many once enthusiastic investors packing. Economic growth, while firming to 6.9% in the first quarter, has eased substantially in recent years and many fear it could slide even further.

Surveys show that American companies think operating in the world’s second-biggest economy had indeed become harder. Home-grown companies are becoming more advanced and more competitive, lessening their hunger for knowledge partners from more developed economies could bring to the table.

Some 77% of U.S. companies in China perceive the environment getting less hospitable, according to a recent survey of 496 business leaders conducted by the American Chamber of Commerce in China.

Around 10% said they planned to move or had moved a portion of their business outside of the country due to regulatory obstacles. Australian casino group Crown is one of the latest to beat a retreat, after 18 of its employees, including its executive vice president for VIP gambling, were arrested for breaching marketing rules.

But change could be afoot. Keen to extend an olive branch to Donald Trump, President Xi Jinping has indicated he’d be open to relaxing rules around foreign investment in exchange for the smoother entry of Chinese goods, service and investment across the U.S. border.

JPMorgan last year it sold its minority stake in JPMorgan First Capital Securities to its Chinese partner amid frustration it couldn’t exercise more management control. Now, Dimon says the bank could come back.

“My longer-term dream is that we have, we own, 100% of something,” Dimon said during an interview with Bloomberg this morning from the Global China Summit in Beijing. “Twenty years from now, they will house 35% of the Fortune 3000 and we should build for that.”

In November, Chinese authorities said a 49% ownership cap on foreign interests in the banking sector will gradually be raised, though they didn’t elaborate further. In April, the country said it would allow foreign majority ownership of automotive joint ventures by 2025.

Recent boosts in retail sales show the government making headway on its strategy to drive economic growth via domestic consumption, rather than industrial production, Morgan Stanley’s Gorman said.

“China has recognized it has to slow the debt-to-GDP growth, de-leverage and open up its capital market,” he told the Xinhua new agency. “All of these things happen in small steps, but generally I think China is relatively well-positioned to weather the challenges.”

Morgan Stanley needs to have a bigger presence in China, Gorman said, despite lingering dangers. “If you see through the risks, China remains a pretty attractive investment opportunity.”

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Ross Kelly
Ross Kelly is a London-based business journalist. He has been a staff correspondent or editor at The Wall Street Journal, Yahoo Finance and the Australian Associated Press.

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