CHINAMacroReporter

'Why U.S. Securities Investment in China is Vastly Underestimated'

Why Impeding U.S.-China Capital Flows Isn't Easy

‘The conduits of US securities investment in China that are obscured or ignored in the US Treasury International Capital (TIC) dataset constitute a majority of all holdings, so these figures vastly underestimate the true scope at the end of 2020.’
by

|

The National Committee for U.S.-China Relations | Rhodium Group

January 31, 2021
'Why U.S. Securities Investment in China is Vastly Underestimated'

Read the 24-page report

'Numerous US corporations, individuals, and institutional investors (i.e., pensions, endowments, insurance companies, etc.) have acquired securities issued by corporate and government entities from China. Figure 6, above, provides an overview of some of the most common channels and parties for such transactions:’

  1. ‘Direct purchase of China Onshore Equity Securities: A US institutional investor like a state pension fund places money with a domestic asset manager such as JPMorgan, which in turn obtains Chinese regulatory approval to invest directly in the onshore equity securities listed on the Shanghai or Shenzhen stock exchanges on the US investor’s behalf.’
  2. ‘Purchase of American Depository Shares: A US retail investor purchases the US-listed American Depository Receipts (ADRs) of a Chinese company like Pinduoduo. These ADRs confer ownership of the underlying equity shares of Pinduoduo’s Cayman Island holding company, which in turn controls actual operations in mainland China through a variable interest entity (VIE) structure involving a mixture of ownership claims and contractual arrangements.’
  3. ‘Purchase of Hong Kong Listed Shares: A US high net worth (HNW) investor places money with an asset manager outside the United States such as Sumitomo Mitsui Trust Asset Management, which in turn acquires the shares of a Hong Kong holding company like Sino Biopharmaceutical Limited that controls a physical business in mainland China.’
  4. ‘Direct purchase of China Onshore Debt Securities: A US financial institution like Wells Fargo Asset Management purchases the onshore debt securities of a mainland China company through an international subsidiary using the China Interbank Bond Market Direct (CIBM Direct) program.’
  5. ‘Purchase of Debt Securities Issued via Offshore Financing Vehicles: A US institutional investor like Prudential purchases dollar-denominated debt issued by a central state-owned enterprise such as State Grid Corporation of China through a financing vehicle domiciled in the British Virgin Islands.’

‘Official figures on US portfolio holdings of debt and equity securities issued by corporate and government entities from China come from the US Treasury International Capital (TIC) dataset.’

  • ‘The US Treasury collects the underlying data through surveys of custodians, which report the geography of investor by legal domicile and the geography of the owned securities by the legal domicile of the entities issuing securities.’

‘Therefore, the official TIC data cover investment structures like those described in Channel 1 of Figure 6, but not those described in Channels 2 through 5.’

  • ‘For example, Channels 2 and 3 would be classified as US equity securities investment in firms from the Cayman Islands and Hong Kong, respectively, while Channel 4 would not be considered US debt investment as the securities purchaser is not domiciled in the United States.’

‘TIC data show that US portfolio investment holdings of securities issued by Chinese entities in September 2020 stood at $211 billion for equity and $29 billion for debt, for a total of only $241 billion.’

  • ‘This equates to less than 2% of total US international portfolio investment holdings reported in the September 2020 TIC data and is roughly equivalent to US portfolio investment holdings of securities from South Korea, a country that had only 12% of China’s GDP in 2018.’

‘However, the conduits of US securities investment in China that are obscured or ignored in the TIC data constitute a majority of all holdings, so these figures vastly underestimate the true scope at the end of 2020.’

More

CHINAMacroReporter

February 20, 2021
‘UNDERSTANDING DECOUPLING: Macro Trends and Industry Impacts’
‘Comprehensive decoupling is no longer viewed as impossible: if the current trajectory of U.S. decoupling policies continues, a complete rupture would in fact be the most likely outcome. This prospect remains entirely plausible under the Biden administration.’
keep reading
February 20, 2021
‘Europe can’t stay neutral in US-China standoff’
‘China aims to create a world that is not safe for Europe — strategically, economically or ideologically. Xi is actively striving to undermine the stature of democracies in the global order. The more power China amasses, the less tolerant it will become with any government that won’t toe its line. China also represents a long-term economic threat to Europe — not merely because it is an advancing competitor in a global market economy, but because Beijing’s policies are designed to use and abuse that open world economy to eventually dominate it.
keep reading
February 20, 2021
‘Beat China: Targeted Decoupling and the Economic Long War'
‘The economy is the primary theater of our conflict with China. It is now clear that the U.S. and Chinese economies are too entangled, particularly in critical sectors such as medicine, defense, and technology.'
keep reading
March 9, 2017
So many twists and turns to the China Housing markets story
[CHINADebate Presentation] One of the highlights in our recent 'In Pursuit of Patterns' series of client notes, showed that the land sales growth had tended to lead the price growth and a significant increase in land sales would lead, with a lag, to the subsequent correction in prices.—Almost everyone on the outside seems to have missed the biggest bull market in China housing in 2016, culminating in policy tightening cycle kicking in at the end of the year. But what's next?
keep reading
February 27, 2017
Is The U.S. Ceding Global Leadership To China?
'China isn't positioned to replace the U.S. as a global leader anytime soon.'—Hard on President Trump's 'American First' inaugural address, Xi Jinping gave a rousing paean to globalism at the World Economic Forum. And, immediately the hot question became: 'Is the U.S. ceding global leadership to China?' Yes and no, says Bill Overholt of the Harvard Asia Center. Yes, the U.S. is ceding global leadership. No, China won’t replace the U.S. What will replace the U.S. is ‘G-Zero’, a world with no single global leader. Not China, not the U.S. So, can his critics lay this outcome at President Trump’s feet?
keep reading
February 15, 2017
C-to-C Internet Commerce- From Taobao Shops to Taobao Villages
One is some of the local government-owned SOEs are the sources for overcapacity. The reason is because the local government also wants to ensure there's some degree of employment locally, and perhaps some source of taxation. The Chinese government is now going to need to start the so-called supply-side economics to try to consolidate overcapacity in a number of sectors. It's going to impinge on the interests of many of these local SOEs as well as the local governments who own them.
keep reading
February 15, 2017
How SOEs & Local Governments Create Overcapacity
One is some of the local government-owned SOEs are the sources for overcapacity. The reason is because the local government also wants to ensure there's some degree of employment locally, and perhaps some source of taxation. The Chinese government is now going to need to start the so-called supply-side economics to try to consolidate overcapacity in a number of sectors. It's going to impinge on the interests of many of these local SOEs as well as the local governments who own them.
keep reading
February 15, 2017
Why SOE Reform is So Tough
'...SOEs need to reform, because on one hand, many of them have achieved a lot for China. On the other hand, they've actually created quite a lot of harm, in particular in the areas of overcapacity but also in the areas of corruption we've talked about.'
keep reading
February 2, 2017
AmCham China Chairmen's View From China in D.C. 2017
[AmCham China & CHINADebate U.S.—China Trade/Business Series 2017] Terrific insights from leaders on the ground in China. While in D.C. the Chairmen joined us in a panel discussion and individual interviews about U.S. business in China, U.S.-China relations, trade, and much more. We present their views in a 13 part series. Sheryl WuDunn, business executive, lecturer, best-selling author, and winner of the Pulitzer Prize moderated.
keep reading
February 1, 2017
'Chinese Politics In The Xi Jinping Era'
[Malcolm Riddell Interviewed Cheng Li] 'If you ask any taxi driver in Beijing, Shanghai, or Guangzhou, he or she will tell you – with accuracy – which leader belongs to which faction. : 'China is a one–party state, but that does not necessarily mean Chinese leadership is a monolithic group with leaders who have the same ideas, same background, same world views, same politics. No, they're divided.'
keep reading
December 7, 2016
First 100 Days: Do Not Provoke China
The First 100 Days interview series features Pacific Council experts addressing the top foreign policy issues facing the incoming Trump administration.: Warns of the potential for new conflicts if Donald Trump follows through with his campaign promises regarding China.
keep reading
October 18, 2016
How Alibaba, Xiaomi, & Tencent are Changing the Rules of Business
[An Interview of Ed Tse, the author of 'China's Disruptors: Alibaba, Xiaomi, & Tencent... how innovative 'Disruptor' companies are restructuring China's economy.' ] The real force in Chinese economy is increasingly private companies, not SOEs. / Leading private Chinese companies are innovative and ambitious
keep reading
July 14, 2016
How 'Brexit' Will Impact China's Economy
David Dollar gives you fresh insights to better incorporate Brexit's impact into your analyses of China and global economies & markets, including: 1. Why, after the Brexit vote, did the Shanghai Stock Market fall only 1%? 2. How will Brexit affect the value of the RMB and China's currency policy? 3. How will Brexit impact trade with the EU, China’s largest trading partner? 4. Why, in the larger geopolitical perspective, could China be the big winner from Brexit?
keep reading
July 2, 2016
China housing: boom, bust, or bubble-or...?
100s of Cities Bubble Up & Down As Policy Makers Press the Levers China hasn’t collapsed. And, the bubble hasn’t burst because there may not be just one big real estate bubble. Instead, there are 100s of sizable cities, each moving in its own cycle, each responding to how its local policymakers stimulate & tighten-stimulate & tighten, and each having performance divergent from that of other cities. Watch here to see how city-level markets bubble up and bubble down...
keep reading

Heading

Lorem ipsum dolor sit amet, consectetur adipiscing elit. Suspendisse varius enim in eros elementum tristique. Duis cursus, mi quis viverra ornare, eros dolor interdum nulla, ut commodo diam libero vitae erat. Aenean faucibus nibh et justo cursus id rutrum lorem imperdiet. Nunc ut sem vitae risus tristique posuere.