China woes resulting in capital flight to US

HNA Group founder Chen Feng has opened a US money-management firm.
HNA Group founder Chen Feng has opened a US money-management firm.PHOTO: BLOOMBERG

WASHINGTON • When a new credit hedge fund opened in Mountainside, New Jersey, few would have guessed where much of its funding came from: Chinese billionaire Cai Kui.

The Westfield Investment fund, founded by former Goldman Sachs Group managing director Renyuan Gao, managed US$139 million (S$195 million) as of January. It is part of a new crop of asset-management firms expanding China's reach on Wall Street as money has poured into the US from the world's second-biggest economy.

HNA Group founder Chen Feng has opened a US money-management firm. China Vanke, the mainland's second-largest residential developer, has indirectly taken a major stake in a manager. All told, about 324 firms with financial ties to the mainland and Hong Kong had registered with US regulators by last year, more than double the number in 2012, filings show.

They are riding the wave of capital that left China on concerns about bank debt, a real estate bubble and the yuan, which has plummeted about 11 per cent against the US dollar in the last two years. The currency flight was reflected in balance of payments data where capital outflows tripled to US$220 billion last year from US$70 billion in 2014, said Mr Derek Scissors, a China economist at the American Enterprise Institute.

"There is so much Chinese money floating around the US. If you're a Chinese money manager, why wouldn't you come here?"

The migration comes amid a Chinese shopping spree for an array of US companies, including financial firms like New York's Cowen Group and the Chicago Stock Exchange. Chongqing Casin Enterprise Group led the purchase of the exchange. The deal was reviewed by a US panel on national security grounds and cleared in December.

In another deal with political overtones, a subsidiary of Mr Chen's HNA Group agreed in January to buy a stake in Mr Anthony Scaramucci's SkyBridge Capital, a New York fund of hedge funds. The announcement came after reports that Mr Scaramucci had been tapped for a top job in the White House, stirring talk that HNA's motives were partly political.

Mr Scaramucci, whose White House job never materialised, has denied that HNA was seeking influence in the Trump administration.

Chinese citizens were able to circumvent government limits on overseas investing, including a US$50,000 annual cap on foreign currency purchase, until late last year. Officials began to tighten enforcement of the restrictions in response to a decline in foreign reserves that reached US$1 trillion by the end of 2016.

That prompted JD Wealth, which is majority-owned by e-commerce giant JD.Com Inc, to shelve its plan to start a robo-adviser in the United States after registering with the Securities and Exchange Commission (SEC), said a person familiar with the situation. Beijing-based JD Wealth had planned to allow Chinese citizens to open brokerage accounts with as little as US$100 and invest in US stocks through their mobile phones.

Other Chinese firms are raising funds in the US following the government crackdown. XIO Cayman, an offshore affiliate of XIO Group, a London-based private equity firm controlled by Chinese money manager Athene Li, registered with the SEC in November. XIO Group had earlier raised about US$120 million from investors in the US and overseas, according to a notice filed with the SEC on Sept 6.

The next day, XIO completed its US$1.1 billion acquisition of California-based JD Power and Associates from S&P Global.

"The tide has completely turned for almost every Chinese financial firm that is trying to grow an international practice," said Mr Michael McCormack, a financial marketing consultant, referring to the stricter enforcement of currency rules. "The clampdown is 99 per cent of the reason for raising assets abroad."


A version of this article appeared in the print edition of The Straits Times on May 09, 2017, with the headline 'China woes resulting in capital flight to US'. Print Edition | Subscribe