On Friday, April 30, Vanguard Group, one of the largest fund management companies in the United States, announced its withdrawal from China, causing a great shock to the market. According to foreign media, the reason for the withdrawal is probably due to increased concerns about Chinese regulations and costs, but also because it feels that it is difficult to have long-term growth in the Chinese market.
U.S. media Bloomberg reported that Pioneer Group employees held an online meeting at their desks on the 40th floor of the Shanghai World Financial Center last month, where Scott Conking, a $7 trillion fund manager and regional head, did not give a morale-boosting speech, but instead announced that only the joint venture with Ant Group would be retained to maintain its business in China in the future, and the rest of the business would be withdrawn. Many of the executives in attendance were unprepared and shocked. After the meeting, Pioneer’s management laid off more than 10 employees on the spot.
Behind Pioneer’s seemingly hasty retreat from China was a multi-year review by top executives to see if its low-cost model would work under the Communist government’s model, and the conclusion was that “it doesn’t look like it does at this point,” the newspaper’s sources said. Even as China’s economy begins to emerge from the impact of the pandemic, the pioneer’s concerns about costs and regulations continue to grow.
The news comes as the de facto controllers or representatives of 13 online financial platforms, including Tencent, were interviewed by Chinese government authorities on April 29, and as U.S. media outlet The Wall Street Journal cited this week that the Communist government is investigating the approval process for the listing of Jack Ma’s Ant Group.
China claims to have opened the door to foreign fund licenses, but has tightened its requirements for foreign companies. In early 2020, the U.S. and China signed the first phase of a trade agreement in which Beijing pledged to open its financial markets to the U.S. However, Chinese Communist Party regulators last November asked two U.S. companies to commit to providing liquidity support for their license applications, raising concerns about additional capital costs for Pioneer Group. A year after the Communist Party opened foreign fund licenses, only BlackRock Inc. has been granted a permit.
It has been decades since Wall Street investment banks first entered the Chinese market, but operations are still dwarfed by the $47 billion raised by international fund companies in China in the first eight months through last year, less than half the $967 billion raised by China’s 100 local fund companies.
According to those in the know, Pioneer’s approach is a wake-up call for other global asset managers still focused on China’s wealth market.
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