Singapore sovereign wealth fund GIC has denied the Financial Times’ report that it has “put the brakes on private investments in China as it steps up scrutiny of risks in the world’s second-biggest economy,” but admitted in a statement to Reuters that “the overall investment environment in China saw a slowdown in deal-flow last year” – yet Global SWF data shows a massive tilt away from China and towards the USA, UK and Australia.
The FT’s sources said GIC had “scaled back commitments to China-focused private equity and venture capital funds over the past year”. But a GIC spokeswoman told Reuters, "With China's domestic market size, there is good potential for investors to invest in good companies and grow with them over the long term. While, our on-the-ground team continues to explore long term opportunities across many sectors due to a rising middle-class, an entrepreneurial private sector, as well as China's decarbonisation efforts.”
Global SWF data showed a drastic cut in GIC’s private market investments in China in 2022. The decline began in 2021 when its investments in Chinese private equity fell 43% from 2020 when the Singaporean fund invested a solid US$3.3 billion. Yet, GIC’s investment in the USA increased 13% to US$14.6 billion, Australia rose 21% to US$2.1 billion, the UK grew by an estimated 260% to US$5.55 billion in 2022. The three developed markets were GIC’s biggest in terms of private markets investment. Nevertheless, China remains the biggest part of GIC’s portfolio, making up 37% of AUM in FY2022, eclipsing Asian (ex Japan) which contributed 25%.
GIC’s investment trends followed the trends seen elsewhere in the sovereign wealth universe. Sovereign investment in private equity in China collapsed from US$5.8 billion in 2021 to under US$1 billion in 2022, mirroring the pivot towards the West.
GIC is not the only sovereign investor that is cooler on investment in China. Earlier this month, Canada’s US$181 billion Ontario Teachers' Pension Plan (OTPP) indicated it was pausing future direct investments in private assets in China due to geopolitical risk. Allocations to China amount to just 2% of its AUM and it will continue to invest in public markets and indirectly in private markets through fund partners and external managers. Meanwhile, ethical issues prompted Norges Bank Investment Management to exclude AviChina Industry & Technology from investments due to the “unacceptable risk” due to its sales to Myanmar, which expose it to humanitarian and human rights issues.
US-based state-owned investors are also reconsidering their approach. Washington State Investment Board CEO Allyson Tucker was quoted by Reuters as saying, “I happen to believe the US-China rivalry will be one of the dominant themes of our times. As a global investor, we have to think about whether or not we continue to be allowed to invest in China. Right now, we have exposure in every single one of our asset classes. It used to be a much larger part of our portfolio than it is today.”
Part of the reason for the retreat from China is the impact of the Russian invasion of Ukraine on the global market, but there are specific issues related to the Chinese market. China faced headwinds as a result of Covid lockdowns, the ongoing real estate downturn, a regulatory clampdown on tech firms, and a challenging external environment.
While the lockdowns have diminished and the regulatory environment is a lot clearer, there are mounting tensions between China and the West, while the prospect of a Chinese incursion into Taiwan remains on the minds of the global investor community. As such, a full recovery in investment is unlikely, even though there is greater clarity on tech regulation and the draconian lockdown measures have been lifted.