After foreign media reported that international investors sold off $35 billion worth of bonds in the first four months of this year and that foreign companies were considering pulling out of China, Chinese state media immediately reacted. Experts say that the Chinese government is conducting “risk prevention” propaganda among domestic citizens to settle things down temporarily. The exit of foreign companies will have a huge impact on local companies and significantly impact Chinese employment.
The People’s Daily, the official media outlet of the CCP, reported on May 21 that the authorities had helped the companies solve problems like restoring production, logistics, and transportation and that “the basic principles of foreign investment have been stabilized.” From January to April, the use of foreign capital across the country reached 478.61 billion yuan, up 20.5% over the same period last year/ 20.5% higher than the same period the previous year. The statement is intended to refute recent foreign media reports that foreign capital has massively pulled out of China.
On May 18, the Financial Times calculated (based on Hong Kong bond data) that foreign investors sold off more than 108 billion yuan (about $16 billion) worth of Chinese bonds in April, making the capital outflow (from yuan-denominated bonds) in the first four months of this year hit a record of 235 billion yuan (about $35 billion).
According to another Financial Times article on May 21, as a result, direct investment into China by foreign companies is falling off a cliff. Joerg Wuttke, president of the European Union Chamber of Commerce in Beijing, said that unpredictability has caused the European business community/ the European Economic Community to “pause” their investments in China. “Many of our members are now taking a wait-and-see approach to investments in China,” he said, citing an attitude survey this month of the chamber’s 1,800 members. “Twenty-three per cent of our members are now considering shifting current or planned investments out of China, the highest level on record. And 77 per cent report that China’s attractiveness as a future investment destination has decreased.”
According to research by Zhou Junzhi, Head of the Macro Analysis at Minsheng Securities, logistics and freight services across China had cooled down at the end of March. The truckload index fell 80 % over the same period last year due to the closure of Shanghai city and Jilin province. Roads in many places were strictly blocked. The distribution of goods in many provinces and cities decreased by 30%. The National Transportation & Logistics Index dropped 20%.
Wang Jun, former director of the International Department of the Beijing Tianze Economic Research Institute, told the Epoch Times: “If scholars living in mainland China had any conscience, they would trust in the data of Financial Times. In particular, Shanghai was recently locked down for nearly 60 days. Many businesses in the Fortune Global 500 ranking consider whether they should take immediate action to leave China. The mindset of continuing business in China for a long time has been shaken. Shanghai is China’s economic hub, and this (lockdown) has a big impact on it.”
Huang Jun, an economist living in the United States, told the Epoch Times that the People’s Daily report was intended for domestic propaganda purposes rather than foreign investors. This is a propaganda tactic to “prevent risks” to calm the panic in the domestic (national) public/ community.
As Reuters reported on May 5, according to a survey conducted by the European Union Chamber of Commerce in China, nearly a quarter of European companies in China are considering transferring their investments in China to other countries, more than double the number at the start of the year. 92% of foreign companies surveyed said their business was negatively affected due to port closures, decreased road transport volume, and the rise in ocean freight rates.
Huang Jun believes that the main reason for the withdrawal of foreign capital from China is that China’s epidemic prevention measures have resulted in the closure of Shanghai and other cities, which has had a serious negative impact on the country’s social activities and economic development. In addition, there are two other reasons why foreign capital flows out of China: the Fed (The Federal Reserve) raises interest rates and the Russia-Ukraine war.
He said: “The Fed raises interest rates and the Chinese central bank cuts interest rates, which will lead to the withdrawal of capital from China to conduct arbitrage since the US interest rates were lower than China’s in the past.”
“Due to Western sanctions imposed on Russia, investors fear that China will suffer the same fate if it supports or secretly assists/ backs up Russia, and some foreign capitalists will withdraw from China/the country.”
On March 13, National Security Advisor Jake Sullivan warned China that if it helps Russia avoid comprehensive sanctions due to the Russia-Ukraine war, it will “absolutely” face consequences.
China’s April economic data released by the National Bureau of Statistics on May 16 showed a wide-ranging slide in the Chinese economy. In April, the total retail sales of consumer goods decreased 11.1% over the same period last year; the added value of large industrial enterprises decreased 2.9% over the same period the previous year.
According to CGTN – the English channel of China Central Television CCTV, China’s factory activity saw a decline in April. The purchasing managers’ index (PMI) for China’s sector manufacturing dropped by 2.1 percentage points to 4 in April, weaker than Reuters’ estimation in April of 48.0, marking the lowest figure since February 2020. The non-manufacturing segment slumped by 6.5 percentage points to 41.9.
China’s National Bureau of Statistics acknowledged that “downward pressure on the economy is increasing due to the harsher international environment, and the obvious impact of the domestic epidemic has been exceeding their prediction.”