This year has seen more than one reason for foreign capital to leave China’s once irresistible market.
According to The Economist, The Institute of International Finance (IIF) forecasts that 300 billion dollars of capital will flow out of China this year, doubling the 129 billion dollars in 2021.
China had been a hotspot for yield-seeking global investors. Still, according to data provider Dealogic, Chinese real estate firms sold only 280 million dollars in high-yield dollar bonds this year. A dramatic year-on-year drop from 15.6 billion dollars in 2021.
In the first three months of 2022, the value of foreigners’ yuan-denominated financial assets in China decreased by roughly 150 billion dollars, the most significant loss ever.
Since last year, investors have seen ups and downs with China’s sweeping crackdown on multiple sectors. Most damages were in the real estate, tech, education, and online industries.
The stress on the economy forced China to promise in mid-March that it would reduce regulatory restrictions, assist property and technology firms, and stimulate the economy.
Then came the geopolitical turmoil from the Russian invasion of Ukraine in late February.
As CNN quoted from China Central Depository and Clearing, foreign investors sold a net 35 billion yuan (5.5 billion dollars) of Chinese government bonds in February, the most extraordinary monthly drop ever recorded. The sell-off reached a record high of 52 billion yuan (8.1 billion dollars) in March.
At the time, it was because of China’s stance on the Russian invasion of Ukraine which left investors nervous that China would be slammed with secondary sanctions for attempting to help Moscow.
CNN noted that the conflict had heightened fears that China may raise its military force against Taiwan, causing a significant capital flight from the Asian island.
After Western powers increased pressure on China to withdraw any of its intention to assist Moscow materially, the Omicron Covid disease boomed.
Beijing held steadfast to its zero Covid policy despite the hefty price. During and after the lockdown in Shanghai, international companies have been much more open to departing the financial hub.
A flash survey conducted by the German Chamber of Commerce in China found that German firms were increasingly anxious about their business by the end of March.
Over half of the German enterprises polled claimed the COVID-19 pandemic had harmed their logistics and warehousing, and 46% stated their supplies had been badly interrupted.
The survey on March 29 by the American Chamber of Commerce (AmCham) Shanghai and AmCham China found that 54% of firms polled said they had lowered their revenue expectations for 2022.
The European Chamber of Commerce also organized a survey between April 21 and 27.60% of respondents stated they were lowering their income estimates for 2022, and 23% said they were considering relocating planned or present investments outside of China. But, again, all stemmed from China’s uncompromising approach to containing COVID-19.