The Biden administration looks set to implement another set of China investing rules this week. This time, U.S. regulators are looking to limit new private equity investments on certain sensitive industries in China. Namely, the administration has continued to set limits on flows into AI, semiconductor, and quantum computing firms. Despite short-term pain from these headlines, however, analysts at KraneShares believe there’s a silver lining for investors interested in China.
Yes, the U.S. has implemented a range of regulations on U.S. investors and companies’ ties to Chinese tech sectors over the last few years. However, KraneShares sees this latest drop as a positive for investing in China. Per the firm’s recent note, it believes these new regs could be the “final guardrails” in the U.S.-China trade and investment relationship. In such a scenario, investors may be freed from concern about further, looming regulations.
See more: “KraneShares’ Closer Look at China Tech Hub Shenzhen”
China Investing Rules in the Diplomatic Context
That case also leans on some positive news from the diplomatic corps. KraneShares believes the Biden administration is working on “stabilizing” the U.S.-China relationship. Treasury Secretary Janet Yellen and Special Climate Envoy John Kerry both visited China over the last year, while the administration invited China’s foreign minister to visit Washington.
Further reporting supports that outlook, with news outlets suggesting that internal pushback saw the Biden Administration limit the extent of the new regulations. Treasury officials specifically sought to limit the executive order’s scope to help protect U.S. investment in China. Given that officials have demonstrated an interest in carefully crafting new China investing rules within national security paradigms, for example, China investors may be nearing the end of looming regs as a constant factor.
KraneShares offers a series of ETFs that could benefit from a kinder market environment less impacted by China investing rules. Those ETFs include the likes of the KraneShares CSI China Internet ETF (KWEB) which offers exposure to Chinese software and information stocks. KWEB holds $6.3 billion in ETF AUM.
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