The economy today
Foreign investors are abandoning China
Audio 04:02
Shanghai's new World Financial Center, China's tallest building, stands among other skyscrapers near the Huangpu River Thursday August 28, 2008 in the Pudong district of Shanghai, China.
China's tallest building at 492 meters high (1,614 feet) and 101 stories (illustration image).
© ASSOCIATED PRESS - Eugene Hoshiko
By: Dominique Baillard Follow
3 mins
Do foreign investors still trust China?
Since March they have massively shed their Chinese titles.
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$17 billion invested in Chinese bonds or stocks were sold in March by foreign funds.
These ebbs intrigue analysts.
Firstly because they are imposing, then because they break with the dynamics of increase in foreign investments at work for several years.
Finally, because the haemorrhage continues in April, even if the amounts of foreign capital outflows in recent days have been significantly lower.
The first explanation owes a lot to geopolitics: with the Russian war in Ukraine and Xi Jinping's support for Vladimir Putin, foreign funds prefer to anticipate before suffering the repercussions of possible sanctions against China.
Because Beijing could endure financial sanctions if it were to openly deliver arms to Russia, for example.
Investors wake up to rising risks in the region
It's not just the conflict in Ukraine that worries them.
The hypothesis of a war by China against Taiwan, a hypothesis that they have ignored until now, pushes them to review their portfolio and to abandon a market suddenly perceived as perilous.
This capital flight also comes at a time when China is facing a resurgence of Covid.
The confinements of Shanghai and around forty other large cities, the scenes of chaos observed in the four corners of the country raise fears of a recession.
And then the way the regime is fighting the pandemic by maintaining the zero-Covid policy challenges investors.
This authoritarian management is reminiscent of the brutal takeover of the Chinese tech sector in 2021. Governance that is ultimately quite insecure for foreign investors.
Is there a lack of love between China and foreign investors?
Some analysts are convinced that there is indeed a change of direction.
Others, on the contrary, relativize.
Foreign capital outflows of the same order took place after the Chinese crash in the summer of 2015 and in 2020, at the start of Covid.
These ebbs were temporary, very quickly erased by new waves of investment.
Finally, if the funds are abandoning China, it is not only out of fear of this environment that has become uncertain but also because they are attracted by the yields of American debt.
They become very attractive again.
With inflation, rates are going up.
That of the 10-year Treasury bond came close to 3% last week.
It exceeded the rate of its Chinese equivalent.
A first for twelve years.
This trend is sustainable, at least as long as the Fed acts to rein in rising prices.
This is bad news for Beijing.
If Chinese debt is attracting less interest from buyers, it is difficult to lower rates a little more to support the economy.
This reflux of foreign investors is a new sign of the decoupling between the West and China, but its importance should not be exaggerated either.
Because what is sensitive in the field of finance, where one can easily acquire a security or get rid of it, is not yet so in the real economy.
Foreign direct investment by large Western companies in the Middle Kingdom increased sharply in 2021, by 20%.
The Chinese, American and European economies remain hyper-dependent on each other.
►In brief
Google and Youtube, the two cash machines of the Alphabet group, disappoint in the first quarter
The profits of the Californian giant are still provided, 16 billion dollars, but in sharp decline, - 8% compared to 2021. A decline attributed to the compression of advertising budgets.
Youtube also faces competition from Tiktok.
On the other hand, the party continues for Microsoft: its profits climb by 8%.
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