Drew Bernstein
If you only read the newspaper or watched TV, one might think that the economic relationship between China and America was on the verge of an irreparable split. But as I shared in a recent interview on Bloomberg television, I actually remain fairly optimistic that, despite the many bumps in the road, the world’s two biggest economies will continue to find ways to work together and that deals will get done.
What are the grounds for my cautious optimism?
- Chinese CEOs remain upbeat. I recently returned from spending two weeks in China and met with over 20 management teams across a wide range of industries. While economic growth has moderated, most companies still see plenty of opportunity for expansion in the years ahead. They are hiring new people, investing in new projects, looking at making acquisitions, and eager to raise growth financing. This is not the behavior of CEOs staring down the barrel of an economic catastrophe.
- S. remains top IPO destination. Despite some major rule changes by the Hong Kong Stock Exchange in 2018 to attract more tech companies and the pending launch of the Shanghai Tech Innovation Board, Chinese CEOs still view America as the gold standard for an IPO listing. The U.S. has the deepest pools of liquidity, the most transparent pricing, and the most rigorous disclosure standards. If a company is successful, it can do multiple rounds of equity and debt financing to sustain its growth after the IPO. My firm’s audit and advisory pipeline of Chinese companies preparing for an IPO has never been larger and our Roadmap to a U.S. IPO book is in hot demand.
- 180 reasons you can’t ignore China. According to the most recent tally, China has over 180 “unicorn” private companies with valuations north of $1 billion. That constitutes the majority of the 325 unicorn companies globally. To attract this much private capital, a company needs to be doing something disruptive and have a substantial position in the marketplace. Whether as an investor, investment banker, or corporate competitor, you simply can’t ignore the potential impact as these companies tap the public markets in the years to come.
- Pragmatism usually wins out. Politicians in both America and China may currently believe they can score points with the public by “showing strength” on the range of legitimate disagreements between the two countries. But America also has a long tradition of seeking pragmatic solutions, and since the Deng Xiaoping era China has also generally favored policies that promote growth and prosperity over ideological purity. In the end, we are more likely to see a recalibration, rather than a severing, of the two economies that together account for 39% of global GDP.
For all these reasons my expectation is that the troubled couple eventually finds a way to work things out.
