Why China’s $1.3 Trillion Fund Giant Quietly Exits from Wall Street

The US administration has put strict barriers on China’s funds, keeping CIC off a list of foreign investors and limiting Chinese investment in technology, energy, and healthcare.

For many years, China’s $1.3 trillion sovereign wealth fund was one of the world’s most powerful investors. It invested billions of dollars in Wall Street and owned massive shares in Morgan Stanley and Blackstone Inc.

But things have changed. The recent tensions with the US are creating investment barriers. China Investment Corporation (CIC), China’s largest sovereign fund, is currently retreating from the most-developed economy. CIC is considering selling shares held with US private equity managers and reducing US private assets. Later, they had to cancel the sale.

The retreat shows clear signs of financial decoupling between the two largest economies. Although it is making investments, its slow shift curbs China’s influence on Wall Street, where it has teamed up with many financial giants for years. Since it has cut significant sources of funding, it might now move to the Middle East or other wealthy investors.

Its struggle to maintain its reputation on Wall Street is clear from the recent buyout share sale that CIC recently abandoned. CIC attempted to sell $1 billion shares in US firms, including KKR, TPG, and Carlyle, as a step to shift its portfolio. However, American investors started questioning its commitment to the US.

CIC made this investment decision due to market trends, risk management, and business logic. It has been trying to pull back investment for years, but the process has sped up under US President Donald Trump.

The US administration has put strict barriers on Chinese funds, keeping CIC off a list of foreign investors and limiting Chinese investment in technology, energy, and healthcare.

Trump has put a new investment policy to block Chinese investment in sensitive US industries.

China does not want US-China trade tensions to lead to its assets getting frozen. Earlier, during the Obama government, they have already questioned some of China’s trade practices. Then Trump imposed broad tariffs, and Biden put tighter rules limiting Chinese investments in the US. So, the company sold its shares in US companies like Blackstone and Morgan Stanley. It also avoided deals that would require approval by the Committee on Foreign Investment in the US, or CFIUS.

Despite all this, CIC has still invested its funds into renewable energy and private credit, and it has been exploring emerging markets. As of 2023, over 60% of its public investments are in the US.

The US is building its investment instruments to compete with China. There are even plans for a US sovereign wealth fund to compete with China, but that plan is currently on hold.

US rules have made it harder for CIC to invest. Before the deal, the companies must do deep checks to ensure CIC is not involved. To evade scrutiny from US authorities, they have even added a special clause to isolate CIC’s investment from other investors.

Back in China, it has other problems. Beijing imposed stricter rules about how and where firms can invest globally. The government must approve the company’s foreign investment as it was worried the US might freeze Chinese assets.

The shrinking space makes it harder for CIC to invest, which offers the same financial and political benefits as the US. Experts declare that no alternative for the US market gives both returns and influence.

China was humbled when some of its early investments failed. It lost many oil and gas deals when commodity prices fell. The Chinese government audit blamed its failures on poor management.

Its early stake in Blackstone lost about 80% of its value in the first year and a half. Although the investment later recovered, it made CIC more careful. With its past missteps, it become more risk-averse. It is now become more cautious and conservative.

All these have put a strain on the professionals that CIC searched globally to hire. Many senior staff have left the company due to increased scrutiny and reduced compensation.

CIC used to be a more aggressive investor but became quieter. It is investing in safer economies, including the Middle East and emerging markets. Although it still plays a role in global finance, its days on Wall Street have gone, at least for now.