Global Banks’ Retreat from China: What Went Wrong?

Not so long ago, China was hailed as the next big frontier for Wall Street. The nation’s financial markets, once considered relatively untapped, were said to be worth a staggering US$67 trillion, drawing interest from global banks eager to capture lucrative fees through initial public offerings (IPOs), bond issuances, mergers, and acquisitions. In 2019, Goldman Sachs had ambitions to double its local headcount, and JPMorgan CEO Jamie Dimon spoke boldly about bringing the bank’s “full force” to China. 

Today, however, a different reality has set in. U.S. regulators have intensified their scrutiny of Chinese investments over national security concerns, while China’s economy has faced significant headwinds, not least due to the lingering effects of the COVID-19 pandemic. These factors have combined to prompt several major U.S. investment banks—including Goldman Sachs, Morgan Stanley, and JPMorgan—to either scale back or contemplate further reductions in their China activities.

Why the Enthusiasm Faded

Between 2019 and 2022, Wall Street’s excitement over China was underscored by multiple commitments to expand. Goldman Sachs, for instance, invested heavily in new offices and talent recruitment. Yet, the revenue realisations from these operations fell short. Publicly available data suggest that Goldman Sachs earned just US$67 million in China over five years—a figure that many analysts consider a rounding error for a bank of Goldman’s size.

At the same time, regulatory hurdles in the United States have risen considerably. Heightened scrutiny from bodies like the Securities and Exchange Commission and renewed concerns around data privacy and intellectual property have led many banks to reconsider their China strategies. Moreover, following the pandemic, China’s growth rate has slowed, affecting Chinese equity performance; Chinese stocks have underperformed in three of the last four years, whereas U.S. equities soared during the same period.

Deal Flow Dries Up

Before the pandemic, Beijing had been moving to open up its financial markets to greater foreign participation. But tighter capital controls and pandemic disruptions dampened enthusiasm. In fact, U.S. banks reportedly cut nearly 20 percent of their China exposure as deal opportunities diminished. According to internal analyses and data cited by Reuters, IPOs and merger deals involving Chinese firms declined substantially between 2021 and 2024.

The result? A retreat across the board. Goldman Sachs has reportedly let go of 15 percent of its China-based employees since 2022. At the same time, UBS saw its investment banking team in China shrink by half from 2019 to 2025, reflecting a significant contraction in strategic focus.

Geopolitics and the Forced Choice

The ongoing geopolitical tensions between the United States and China have introduced yet another layer of complexity. As discussions around global security intensify, banks face pressure to “pick a side,” particularly as U.S. Treasury officials examine cross-border capital flows more closely. For many institutions, the perceived risks currently outweigh the potential rewards, leading to a pivot away from China.

Lessons Learned and Future Outlook

For investment banks, the experience in China serves as a cautionary tale. While the country remains an economic powerhouse, the interplay of regulatory constraints, geopolitical tensions, and an economic slowdown can swiftly alter once-bullish calculations. The previously anticipated billions in annual fees may still exist, but they come with new layers of uncertainty and complexity.

Nonetheless, some analysts argue that China’s financial market still has room to grow, given the size of its middle class and its consistent efforts to internationalise the renminbi. Yet, until economic indicators stabilise and political risks diminish, major Wall Street banks appear more inclined to scale back rather than double down.

Conclusion

It was only five years ago that China stood as the ultimate prize for global banking heavyweights. Today, that optimism has largely evaporated. Faced with muted returns, unpredictable market conditions, and regulatory pressure at home, Wall Street’s biggest names seem to have made their choice: cautiously step back before expanding again in the future—if at all.

For readers of CFI.co, the key takeaway is clear: even in a world of eye-popping market sizes and headline-making ambitions, fundamentals matter. If economic and political conditions remain difficult, even the brightest of frontiers can dim quickly.