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September 7, 2021

George Soros, the billionaire financier, and philanthropist think BlackRock has made a huge miscalculation on China. BlackRock (BLK) recently started offering investment products to individual Chinese investors as the country's first entirely foreign-owned fund management firm. But Soros slammed the move, claiming the company "appears to misunderstand President Xi Jinping's China."

"Pouring billions of dollars into China now is a tragic mistake," he wrote. "It is likely to lose money for BlackRock's clients and, more important, will damage the national security interests of the [United States] and other democracies."

Soros highlighted Xi's recent crackdown on private businesses, which he sees as proof that "the regime regards all Chinese companies as instruments of the one-party state." He also referenced "an enormous crisis brewing in China's real estate market," and Xi's efforts to redistribute wealth. These trends, he said, do "not augur well for foreign investors."

Soros also thinks that BlackRock's initiative is a threat to democracies because "the money invested in China will help prop up President Xi's regime, which is repressive at home and aggressive abroad."

BlackRock declined to comment. In the past, CEO Larry Fink has made clear that he sees the Chinese market as a massive opportunity that can't be passed up. "Rapid economic development and wealth accumulation in the world's second-largest economy has propelled the growth of the $9 trillion Chinese domestic asset management industry," he told analysts in July.

"We are now well-positioned to extend the breadth of our investment solutions and insights to all our client segments across China and help more people transition their savings to investments in China."

Big picture: Soros is a longtime critic of Xi. Still, he's surfacing very real concerns among investors about what Beijing's latest broadsides against firms like Alibaba and Didi mean for long-term investment prospects. It is observed that heavyweight global investment firms are sticking with China despite the ruling Communist Party's sweeping efforts to curb the power of top tech and education companies.

In addition to BlackRock, Fidelity, Pictet and Goldman Sachs (GS) are advising clients to stay invested in the Chinese market, albeit cautiously. Luca Paolini, chief strategist for Pictet Asset Management commented that "The case for China in the long-term is intact,".

The S&P/BNY Mellon China Select ADR Index, which tracks American depository receipts of top US-listed Chinese firms, has risen 8% in the past week, though it's still off 19% over the past three months. But as Xi's campaign against private businesses continues, voices like Soros could start to carry more weight.