Kuaishou, a popular Chinese short video platform, seems a world away from geopolitics. It shows items such as a grandmother singing Hey Jude with her Chihuahua, migrant workers dancing at construction sites and farmers making pork dumplings.
But the company’s initial public offering in Hong Kong this week — which is set to be the world’s largest since the start of the coronavirus pandemic — reveals a basic truth about the US’s strategic rivalry with China: when it comes to making money, there is much more that attracts than repels.
US institutional investors, including Fidelity and BlackRock, feature prominently among investors in Kuaishou’s IPO, which is expected to raise up to $6.3bn. Their interest is just one of many indications that former US president Donald Trump’s exhortation for “a complete decoupling from China” is falling short.
“Instead of decoupling financially, the US and China now have one of the largest and fastest growing bilateral investment relationships in the world,” said Nicholas Borst at Seafarer Capital Partners, an investment adviser.
“Despite a concerted effort by the Trump administration to reduce investment in China, holdings of Chinese securities by US investors have skyrocketed over the past several years,” Mr Borst added.
Data from the Rhodium Group, a research company, show that investment ties between the US and China are much deeper than is suggested by official statistics. American investors held $1.1tn in equity issued by Chinese companies at the end of 2020 — or about five times more than the $211bn captured by official US data as of September 2020, according to Rhodium Group estimates.
Much of the discrepancy between Rhodium’s estimates and the official US data derives from the fact that many of the Chinese companies that issue shares on US exchanges are domiciled in offshore tax havens such as the Cayman Islands. The practice is so prevalent that the Caymans has vaulted to the top among overseas destinations for US investors, outstripping the UK, Japan, Canada and other countries.
“Trump administration policies have injected greater risk into US-China financial flows but they have clearly not curbed market appetite for greater financial integration,” said Thilo Hanemann, a partner at Rhodium.
In 2020, the appetite among US investors for Chinese equities was particularly strong. Chinese companies raised $19bn in primary and secondary offerings on US exchanges last year, a total eclipsed only in 2014 thanks to Alibaba’s mammoth $25bn IPO in New York.
To be sure, the Trump administration did take several steps that may yet have a considerable impact on US investment flows into Chinese equities.
It put dozens of Chinese companies on blacklists that ban investments in them or make it harder to export technology to them. In addition, US lawmakers at the end of 2020…
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