Earlier this week, China sent a shockwave throughout the global market after its government confirmed that the country’s second-quarter gross domestic product (GDP) growth rate had slowed to a 27-year low of 6.2 percent, largely due to the bruising U.S.-China trade war. Although leaders of the two countries have agreed to keep the trade negotiations going, the head of the world’s largest money manager warns that China’s economy could get worse, because foreign companies operating in the Asian country are running out of patience.
“I do believe the trend in China continues to be downward. We’re hearing from CEOs that more and more supply chains are moving out of China right now,” Larry Fink, chairman and CEO of asset management giant BlackRock, told CNBC on Friday morning. “People are not waiting, companies are not waiting to see what the outcome is.”
Fink is a close watcher of the Chinese economy because BlackRock is in the process of establishing a meaningful presence in the country’s asset management space.
“I think in the long term, China knows they need to find ways to stimulate more of their domestic economy,” Fink predicted.
On a high level, a country’s GDP consists of domestic spending and investment, plus net exports. Fink noted that the drastic difference between the composition of China’s GDP and that of the U.S. and other developed countries provides an important clue to Beijing’s future economic policies.
“Our GDP is 70 percent domestic and 30 percent export. China is flipped—it’s 70 percent exports and 30 percent domestic. So they know that if they are going to be continue to grow, it’s going to be domestic,” he explained.
Fink also pointed to China’s rapidly aging population and the government’s weakening ability to fund a growing retirement pool as a cause of its slowing economy—which is why BlackRock is vying to ramp up investments in China and be a leader in the country’s asset management industry like it is in the U.S.
“If anything the Chinese are looking for greater participation of global firms in their asset management space because they also have a growing retirement crisis,” he told The Financial Times in an April interview, adding that BlackRock is even interested in talking with local regulators to build a “majority-controlled” asset management business, which is rare for foreign firms in China.
Fink hopes this strategy could help BlackRock reverse its own slowing earnings. The New York-based firm currently manages over $6 trillion in client assets. While its asset pool has continued to rise in recent quarters, falling revenue and high expenses have weighed down the company’s bottom line.
On Friday, BlackRock reported a second-quarter revenue of $3.52 billion, lagging behind Wall Street’s estimate of $3.55 billion and down 2.2 percent from a year ago. Earnings per share was $6.41, also missing the forecast and down from last year’s figures.