Chinese stocks experienced a rebound on Monday morning following a series of measures introduced by Beijing to halt their downward trend that had persisted for nearly a month. However, this recovery was short-lived as foreign investors utilized this moment to offload $1.1 billion worth of mainland Chinese equities, as indicated by Bloomberg’s data.
The CSI 300 Index of China, which monitors the performance of the 300 largest companies listed on the Shanghai and Shenzhen stock exchanges, surged by as much as 5.5% on Monday. Yet, it later relinquished most of these gains, ultimately closing the day with a mere 1.17% increase.
Over the weekend, Chinese authorities made significant moves in an effort to boost investor confidence. They reduced the tax applied to stock trades, commonly referred to as “stamp duty,” and lowered the collateral requirement for traders seeking to borrow money for stock investments. Additionally, Beijing encouraged certain mutual funds to refrain from being net sellers of equities, a move reported by Bloomberg citing anonymous sources.
Despite these actions, foreign investors continued to retreat from Chinese markets. The ongoing tensions between the U.S. and China, coupled with Beijing’s tightening regulations on foreign consulting firms and insistence on investment firms refraining from selling stocks during market uncertainties, have contributed to a growing unease among investors about the associated risks of investing in China.
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The first half of the current year witnessed a decline in the number of active hedge funds focused on China, marking the first such decline in over a decade. Furthermore, foreign direct investment in China, measured by direct investment liabilities, plummeted by 87% in the second quarter compared to the previous year, reaching a historic low of $4.9 billion. These figures, released by China’s State Administration of Foreign Exchange, underscored the diminishing foreign investment in the country.
China’s post-COVID recovery has been weaker than anticipated, exacerbated by ongoing economic challenges such as a property crisis, high youth unemployment, substantial local government debts, and dwindling industrial profits. These factors collectively have contributed to a slowdown in foreign investment.
Robin Brooks, the chief economist at the Institute of International Finance, highlighted the monumental shift in global capital flows. China, which had been a magnet for capital inflows to emerging markets, is now witnessing significant outflows for the past 18 months due to investor wariness toward autocratic regimes.
In a larger context indicating China’s diminishing appeal to investors, wealthy Chinese individuals are leaving the country in substantial numbers. Regulatory crackdowns on large private companies have prompted this exodus, with an estimated 13,500 millionaires projected to leave China in the current year, following the loss of about 10,800 millionaires in the previous year, according to Henley & Partners’ Private Wealth Migration Report.
Amid this backdrop, Commerce Secretary Gina Raimondo embarked on a mission to mend the strained relationship between the United States and China. Following extensive discussions, Raimondo and Chinese Commerce Minister Wang Wentao agreed to establish a working group aimed at finding solutions to trade and investment issues. This development signals a shift in Washington’s stance toward China.
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Raimondo’s visit came shortly after the U.S. Commerce Department removed 27 Chinese companies from a list that previously barred them from purchasing American technologies. China’s Ministry of Commerce lauded this move, deeming it conducive to fostering normal trade between Chinese and American companies, and suggesting the possibility of finding mutually beneficial solutions.
After meeting with Raimondo, Wang expressed a positive outlook as well, expressing his readiness to collaborate in creating a more favorable policy environment for bolstering bilateral trade and investment in a stable manner. This exchange signifies a potential shift toward a more cooperative approach between the two nations.
