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Biden, Xi meet against backdrop of dwindling US investment in China

President Joe Biden met with President Xi Jinping of China for the Asia-Pacific Economic Cooperation summit in a highly anticipated attempt to curb mounting tensions.

President Joe Biden met with Chinese President Xi Jinping near San Francisco Wednesday for the Asia-Pacific Economic Cooperation summit, in a highly anticipated attempt to curb mounting tensions between the two nations.

Amid China’s economic downturn, Xi has reportedly pushed for an increase in outside investment into China, which has steeply declined over the past few years.

In 2020, the country’s government began a regulatory crackdown on its tech sector, which led to a slowdown in startups entering the global public markets, and a nearly $1 trillion loss for these tech companies.

With no road to exit for Chinese tech funds and startups, US-based limited partners began to evaluate the risk-reward proposition of their exposure to the region. That year, Chinese PE funds garnered only 31 commitments from US LPs, a 74.4% drop from 2019, according to PitchBook data.

 


China’s slowing economic growth and increasing scrutiny of Western investors led to a pullback in American economic activity, a trend that extended to the private markets. From 2018 to 2022, US LPs slowed their investment in VC and PE funds based in China and Hong Kong, and overall commitments fell 64.8% and 56.5%, respectively.

Amid conflicts between Washington and Beijing, several public pension plans announced plans to divest from China. In 2022, the Teacher Retirement System of Texas opted to halve its allocation to Chinese stocks and Florida’s public employee pension plan halted new investments in the country, The Wall Street Journal reported.

At the same time, other US institutional investors doubled down on their position. CalSTRS launched a search for Chinese equities managers with an ESG focus, according to the report.

In August, the Biden administration restricted US PE and VC firms from investing in Chinese AI, quantum computing and semiconductor companies, citing national security concerns.

While it’s too early to tell whether US investors will resume activity with private market players in the region, Xi told Biden at the summit that the world is “big enough” for both superpowers.

Correction: An earlier version of this article misrepresented CalSTRs’ efforts in China, where the pension fund searched for equities managers in 2022. (Nov. 20, 2023)

Featured image of President Joe Biden following his Wednesday meeting with Chinese President Xi Jinping during the Asia-Pacific Economic Cooperation summit by Kent Nishimura/Getty Images

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