With the slowdown and shrinking profits in the Chinese market, Western financial institutions have halted their years-long expansion in China, cutting back on the scale of investment banking personnel in the country to the highest level in years.
According to a recently released annual report, five out of seven Chinese securities firms under Wall Street and European banks have experienced losses or decreased profits. This has led to a wave of layoffs, with the seven securities firms employing 1,781 individuals in 2023, a 13% decrease from 2022.
Since 2018, the employee numbers at these securities firms had been steadily increasing. Even in 2020, amid recruitment challenges due to COVID-19 restrictions, the decrease in staff numbers was less than 3%.
Currently, the Chinese real estate industry remains sluggish, significantly impacting market sentiment. The escalating tensions between Beijing and Western countries have further contributed to the drastic slowdown in China’s capital market activities.
“The Western investment banks are caught in a vicious cycle,” said Lin Hansheng, head of The Asia Group’s China division, to the Financial Times. “Softening transaction flows mean reduced investment in onshore capabilities, thereby constraining further transaction flows.”
He noted that as opportunities in India, Southeast Asia, and the US appear more promising, some banks have lost patience with their business in China.
JPMorgan Chase CEO Jamie Dimon stated at a meeting in May that their investment banking business in China had experienced a “cliff-like decline” in recent years, highlighting the challenges Western financial institutions face in China.
Morgan Stanley’s China division reported its first loss since 2019 last year. JPMorgan’s profit from its joint venture in China dropped by 55% to 119 million RMB (approximately $16 million). Morgan Stanley’s subsidiary stated in its annual report that the environment had been “filled with challenges.”
Data from the transaction tracking company Dealogic shows that as of May, the size of Chinese initial public offerings (IPOs) was only $8.3 billion, the lowest for the same period since 2009.
The contrast between the data of 2023 and 2021 is stark, as 2021 was a record-breaking year for global investment banks, with six out of seven banks realizing profits from their operations in China.