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Walker Laurent Inc China in crisis

Walker Laurent Inc News

China in crisis

PAG founder, chairman, and CEO Weijian Shan criticizes Beijing’s zero-Covid policies as China’s growth slackens.

The head of one of Asia’s most prominent private equity investors has criticized the Beijing government’s policies that he states have led to a “deep economic crisis” comparable to the global financial crash.

His recent criticism contrasts with the praise he was lavishing on the CCP for their success in managing Covid in 2020 and 2021. Around that time, he also stated his belief that Covid originated in another country than China, probably as part of a military research project in the United States.

Under CEO Weijian Shan, PAG manages over $50bn in assets. Shan said his company had diversified away from China and was being “extremely cautious” about its portfolio in the country.

“The Chinese economy at this time is in the worst shape in the past thirty years,” he said.

“The market sentiment towards Chinese equities is also at the lowest point in the past thirty years. I also think discontent in China is at the highest point in the past thirty years.”

Shan said that vast swathes of the economy, including Shanghai, its financial center, had been “semi-paralyzed” by “draconian” policies attempting to achieve zero-covid status and that the impact on the economy would be “profound.”

“China seems to us like the US and Europe in 2008,” he added. “While we are still confident in China’s growth and market potentials over the long-term, we are extremely cautious about its markets.”

Shan’s comments were recorded during talks with brokers as part of a roadshow for the PAG IPO in Hong Kong. PAG announced a $2bn IPO last month that is expected to be the city’s biggest listing in 2022, valuing the whole group at around $15bn.

Shan’s criticism comes as private equity and venture capital firms are facing growing challenges in making their China bets pay off. Many of the country’s fastest-growing companies are barred from raising capital abroad until the government finalizes new data security and foreign listing regulations. China’s covid policy, which led to a five-week lockdown of Shanghai, has also been a catalyst for a sharp sell-off of Chinese equities.

It is unusual for high-level executives who do business in China to criticize the country or its government. In 2021, JPMorgan Chase chief executive Jamie Dimon was forced to make two separate apologies after joking that JPMorgan would survive longer than the CCP.

Weijian Shan is one of the most well-known and longest-serving financiers in Hong Kong and mainland China after founding PAG in 2010. Previously, he was a co-managing partner of private equity group TPG Capital Asia and also headed JPMorgan’s team in China.

Shan has managed several milestone transactions in China, including the 2005 purchase of Shenzhen Development Bank when he was at TPG, one of the earliest deals by an overseas investor in a Chinese bank.

Earlier in 2022, he was appointed to the Alibaba board as an independent director and has also been on the boards of state-owned Bank of China (Hong Kong), a state-owned steel company called Baosteel, and Lenovo, China’s largest computer company which the Chinese government partially owns.

Beijing initiated an unprecedented regulatory crackdown in July 2021 after ride-sharing platform Didi was listed in New York, even though regulators had warnings about data security concerns.

As part of President Xi Jinping’s “shared prosperity” drive, the clampdown has divided investors. Some international investors believe that the shared prosperity drive has increased the chances of government interference in the private sector and calling China “uninvestable.”

Others have said that government intervention in China does not disrupt longer-term structural trends, such as a growing consumer middle class.

China-centric private equity and venture capital groups enjoyed huge returns from exits as recently as the start of last year, thanks to an influx of New York and Hong Kong listings by mainland China companies.

That helped accelerate investor interest and boosted funds raised in China to more than $72bn in 2022, the first rise in five years, according to investment data company Preqin. But activity in the second half dropped sharply and fundraising in the first two months of this year amounted to less than $1.5 billion.

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