Vanguard Group, the Wall Street giant that invests in everything with a ticker symbol, has notified the Chinese government earlier this year that it will be leaving the mainland. The move would give them no physical presence in China at all, after leaving Hong Kong in 2020 to set up shop in Shanghai.
The reason for the exit, which seems abrupt, is unclear. Just as Wall Street firms have been given the green light to operate financial services firms in China without a joint venture partner, Vanguard has sold its stake in an advisory firm with Ant Financial and only hinted in an article by Bloomberg published Nov. 1 that it might return at some point in the future. Western investors have been rushing to China for years. Vanguard is the first big name to leave.
Vanguard was in China to sell mutual funds and ETFs to Chinese investors. They are now willing to leave that market to the likes of BlackRock, JP Morgan, and Goldman Sachs, all of which have offices in China and are licensed to sell financial products there.
“Vanguard will close its Shanghai office and will continue to monitor developments in China,” the company said in an e-mailed statement to Bloomberg. “We have not ruled out other business opportunities in the future.”
Vanguard signed a joint venture deal with the Chinese billionaire Jack Ma’s company Ant Financial in December 2019. Months later, the pandemic hit and the country was in lockdown mode on and off for nearly two years. This could have had an impact on Vanguard’s decision, although they have been in Shanghai since 2017. By today’s standards, those were the final months of the good ole days with China. A year later, the country was hit with trade tariffs and the relationship has deteriorated since.
Vanguard is a huge China investor. More so than BlackRock, the world’s largest asset manager, Vanguard owns shares of companies on the Defense and Commerce Department’s Entity Lists. A CPA article in September showed that Vanguard was invested in three companies facing capital market sanctions by Treasury, including China United Network Communications Group Ltd, which trades under the ticker 600050.
The company also owns shares in the Shanghai and Shenzhen-listed subsidiaries of Chinese defense contractors, including some facing capital market sanctions imposed by both Trump (in 2020) and Biden (in 2021).
On Oct. 12, CPA published a report highlighting just how piped in Vanguard is to China’s defense industry. Their emerging markets ETF, which trades under the ticker VWO, holds 60 subsidiaries of China defense contractors.
Read the full report here: “Case Study for Congress: Vanguard & FTSE Russell – How Wall Street Funds the CCP & PLA with U.S. Investor Capital”
“China continues to exploit America’s capital markets, and firms like Vanguard help make that possible by funneling American dollars to Chinese companies,” said Senator Marco Rubio (R-FL) about the CPA report. “Put another way, retirees, union workers, military service members, and others are unknowingly funding companies using slave labor, stealing our jobs, and building weapons to destroy our military.”
Representative Mike Gallagher (R-WI), Chairman of the House Select Committee on the CCP, also commented on the CPA report. “This report underscores Wall Street’s addiction to funding malign Chinese companies that are enabling the CCP’s military and economic threats to the U.S. It’s clear that Wall Street will continue to use American investor dollars to underwrite the CCP’s military aggression and human rights abuses unless Congress acts.”
As of Nov. 6, Vanguard has made no public announcement of its decision to exit its JV with Ant Financial, and ultimately give up having a financial services presence in the domestic China market. However, despite leaving, Vanguard remains a big funder of Chinese companies deemed bad actors by the Department of Defense, Commerce and Treasury Department.
We will unlikely know the real reasons for Vanguard leaving. Most companies that leave China do so quietly so as not to upset the government, which can then turn on the foreign entity or hound its employees.
If Companies Are Leaving China, Where Are They Going, And Why?
