China in ‘deep crisis’, says Hong Kong private equity chief

The founder and chair of one of Asia’s biggest private equity investors has criticised the Chinese government for policies that he says have resulted in a “deep economic crisis” comparable to the global financial crash.

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

“We think the Chinese economy at this moment is in the worst shape in the past 30 years,” he said in a video of a meeting viewed by the Financial Times.

“The market sentiment towards Chinese stocks is also at the lowest point in the past 30 years. I also think popular discontent in China is at the highest point in the past 30 years.”

In the video, Shan said that large parts of the Chinese economy, including its financial centre Shanghai, had been “semi-paralysed” by “draconian” zero-Covid policies and that the impact on the economy would be “profound”.

“China feels to us like the US and Europe in 2008,” Shan added. “While we remain long-term confident in China’s growth and market potentials, we are very cautious towards China markets.”

One person with knowledge of the meeting said the video was recorded during talks with brokers as part of a roadshow for the initial public offering of PAG in Hong Kong. PAG filed for a $2bn IPO last month that is expected to be the city’s largest new listing this year, valuing the group at up to $15bn. Shan did not respond to a question about the reason for the meeting.

Shan’s comments come as private equity and venture capital groups face mounting difficulties in making their China bets pay off, with many of the country’s fast-growing companies banned from raising capital abroad until sweeping new regulations on data security and foreign listings are finalised by Beijing. China’s zero-Covid policy, which has led to a five-week lockdown of its financial centre Shanghai, has also contributed to a sharp sell-off in Chinese stocks.

It is unusual for prominent executives who do business in China to criticise the country or its government. Last year, JPMorgan Chase chief executive Jamie Dimon issued two separate apologies after he made a joke that his bank would outlast the Chinese Communist party.

Shan is one of the most high-profile veteran financiers in Hong Kong and mainland China. He founded PAG in 2010. He was previously co-managing partner of private equity group TPG Capital Asia and led JPMorgan’s China team.

Shan has led several landmark transactions in China, including the 2005 acquisition of Shenzhen Development Bank, one of the first deals by a foreign investor in a Chinese bank, when he was at TPG.

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

Beijing kicked off an unprecedented regulatory crackdown in July last year after ride-sharing platform Didi Chuxing listed in New York despite warnings from regulators over data security concerns.

The crackdown, which is part of President Xi Jinping’s “common prosperity” drive, has divided investors. Some international investors believe that the common prosperity policy has heightened the risk of government interference in the private sector, declaring China “uninvestable”.

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

China-focused private equity and venture capital groups enjoyed bumper returns from exits as recently as the first half of 2021 thanks to a surge of listings in New York and Hong Kong by Chinese companies.

That helped boost investor interest and pushed funds raised in Greater China to more than $72bn last year, marking the first rise in five years, according to figures from investment data company Preqin. But activity in the second half dropped sharply and fundraising in the first two months of 2022 totalled just $1.4bn.