China is in ‘deep crisis’, says Hong Kong’s head of private equity

The founder and chief executive of one of Asia’s largest private equity investors has criticized the Chinese government for its policies which he said have led to a “deep economic crisis” similar to the global financial meltdown.

Weijian Shan, whose PAG group manages more than $50 billion, said his fund had diversified away from China and was “very careful” about its portfolio in the country.

“We believe that at this moment the Chinese economy is in the worst condition in the last 30 years,” he said in a video of a meeting seen by the Financial Times.

Market sentiment toward Chinese stocks is also at its lowest point in the last 30 years. I also think that popular discontent in China has reached its highest levels in the past 30 years.”

In the video, Chan said that large parts of the Chinese economy, including its financial hub Shanghai, were “almost paralyzed” due to “very draconian” zero-Covid policies and that the impact on the economy would be “profound”.

“China feels to us like the United States and Europe in 2008,” Chan added. “While we remain confident in the long-term in China’s growth and market potential, we are very cautious about the Chinese markets.”

A person familiar with the meeting said the video was recorded during conversations with brokers as part of a campaign to promote PAG’s initial public offering in Hong Kong. PAG filed for a $2 billion initial public offering last month that is expected to be the biggest new listing in town this year, valuing the group at up to $15 billion. Chan did not respond to a question about the reason for the meeting.

Chan’s comments come as private equity and venture capital groups struggle increasingly to make their bets on China pay off, with many of the country’s fast-growing companies banned from raising capital abroad until Beijing finalizes sweeping new regulations on data and listing security. foreign. China’s zero-Covid policy, which led to the five-week shutdown of its Shanghai financial center, also contributed to a sharp sell-off in Chinese stocks.

It is unusual for prominent executives who do business in China to criticize the country or its government. Last year, JPMorgan Chase CEO Jamie Dimon issued two separate apologies after making a joke that his bank would outlast the Chinese Communist Party.

Chan is one of the most well-known veteran financiers in Hong Kong and mainland China. He founded PAG in 2010. He was previously a co-managing partner of private equity group TPG Capital Asia and led the JPMorgan team in China.

Chan led several high-profile transactions in China, including the acquisition of Shenzhen Development Bank in 2005, one of the first deals a foreign investor made in a Chinese bank, when he was at TPG.

Earlier this year, he was appointed to Alibaba’s board of directors as an independent director. He has also served on the boards of the state-owned Bank of China Hong Kong, Baosteel, a state-owned Chinese steelmaker, and Lenovo, China’s largest computer company.

Beijing launched an unprecedented regulatory crackdown in July last year after listing ride-sharing platform Didi Chuxing in New York despite warnings from regulators about data security concerns.

The campaign, which is part of President Xi Jinping’s “shared prosperity” campaign, has divided investors. Some international investors believe that the Common Prosperity Policy has increased the risks of government interference in the private sector, declaring China “uninvestable”.

Others have argued that government intervention in China does not derail long-term structural trends, such as a growing middle class of consumers.

China-focused private equity and venture capital groups enjoyed bumper returns from exits through the first half of 2021 thanks to increased listings in New York and Hong Kong by Chinese firms.

That helped boost investor interest and drove funds raised in Greater China to more than $72 billion last year, marking its first rise in five years, according to figures from investment data firm Preqin. But activity in the second half fell sharply, and the total fundraising in the first two months of 2022 amounted to only $1.4 billion.

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