The world’s biggest sovereign wealth fund, Norges Bank (NBIM), announced today that it had shut its Shanghai office after 16 years of operation, although it insists the decision was “operational” and it would continue to invest both directly and via funds and Singapore would be used as its hub for the region.
The fund’s China and Hong Kong portfolio totals US$42 billion, down from US$47 billion in 2020, invested in 850 entities. According to Reuters, staff reacted angrily to the news, indicating the suddenness of the decision. It is unclear whether the decision was related to geopolitical and/or economic reasons, but it follows a rapid cooling of relations between the Norwegian state-owned investor and Beijing over the past couple of years.
Relations appeared to be cordial in June 2021 when NBIM praised proposals by China Securities Regulatory Commission to enhance transparency and strengthen shareholder protection in China, including publication of board member details and duties, and agendas and minutes of boards and committees.
Since then, interactions between the fund and the Chinese government became increasingly strain as NBIM divested over human rights concerns. In March 2022, the Chinese foreign ministry reacted angrily to NBIM’s decision to exclude the Chinese sportswear company Li Ning Co Ltd over alleged human rights violations. Beijing was accused of detaining more than a million members of the Muslim minority in political re-education camps across Xinjiang and exploiting them for forced labour. Spokesman Zhao Lijian called the accusations a “huge lie concocted by anti-China forces.” NBIM nevertheless divested its 0.6% stake in Li Ning, which had been worth NOK1.5 billion (US$140 million) at the end of 2021.
In January 2023, NBIM announced it had divested from AviChina Industry & Technology due to the “unacceptable risk” it posed by selling weapons to Myanmar that uses them “in ways that constitute serious and systematic violations of international humanitarian law”.
Global SWF estimates that the exposure of the industry (excluding China’s SWFs & PPFs) totals US$500 billion or 1.9% of global AUM. If we add the domestic portfolios of CIC, SAFE, and NSSF, this figure would increase to US$2.7 trillion.
Norway is not the only country to pull back from China. This week, CPP Investments – Canada’s biggest federal public pension fund - made redundant five investment professionals at its Hong Kong office, according to Reuters. It has paused new investments in China, including direct investments as well as those in China-focused fund managers, due to slow economic growth and geopolitical risks. China accounts for nearly 10% of CPP Investments’ total portfolio. In April, Ontario’s OTPP closed down its Hong Kong-based China equity investment team. Québec’s CDPQ is also drawing back from China with plans to close its office in Shanghai, according to the FT.
China is unlikely to be perturbed by this withdrawal by Western funds. Singapore’s GIC and Temasek remain firmly rooted in Asia’s biggest economy and the world’s industrial powerhouse. Global SWF research finds that GIC’s allocation to China is around 9% of AUM, while Temasek publicly discloses that 22% of its portfolio is in China. Together, both investors have around US$133 billion invested in China.
Also, Middle Eastern funds are seeking to increase their exposure. This week, the President and CIO of the China Investment Corporation (CIC) Ju Weimin met with the CEO of Abu Dhabi sovereign fund Mubadala Khaldoon Al Mubarak “on potential investment cooperation between the two institutions.” The contents of the talks were not disclosed, but such top-level talks usually result in significant commitments and strong ambitions with Mubadala notable for its interest in strategic alliances and bilateral soft power. Mubadala has around US$5 billion invested in China, which is less than half the US$11 billion estimated for the Qatar Investment Authority.
