 "A woman reacts in front of an electronic screen displaying stock prices at a brokerage house in Hangzhou in east China's Zhejiang province, on 5 February, 2024. AP")
China, once the shining beacon of economic growth, is now facing turbulent waters. The signs of distress are evident not only in economic indicators but also in the behaviour of investors. Like a crew abandoning a sinking ship, Chinese investors are rushing abroad, signalling a loss of confidence in the domestic market. What lies at the heart of this exodus and what does it mean for the future of the world’s second-largest economy?
Chinese investors rush abroad
For decades, China’s economy resembled a glamorous cruise liner, attracting investors from around the globe eager to partake in its prosperity. However, recent headlines from Beijing tell a different story - “Chinese Investors Rush Abroad.” This trend reflects a growing lack of confidence in the domestic market among Chinese investors.
The shift in investor sentiment is substantiated by hard data. Chinese investors, once enthusiastic about domestic opportunities, are now seeking refuge abroad. QDII (Qualified Domestic Institutional Investor Programme) channels facilitate this exodus, with a 50 per cent surge in the sale of QDII fund units recorded in January alone. In contrast, investments in Chinese mutual funds have plummeted by nearly 35 per cent.
“We feel a pressing need from our wealthy clients to diversify asset allocation. After 20 years of high growth and high returns, the Chinese economy faces a slowdown in the foreseeable future,” said a Shanghai-based investor.
Impact Shorts
More ShortsDismal state of Chinese assets
The allure of foreign markets is fuelled by the disappointing performance of Chinese assets. The yuan’s depreciation against the dollar, declining stock values and record-low returns on treasury bonds paint a grim picture. Compared to the robust returns offered by US Treasury bonds, Chinese investments seem increasingly unattractive.
The crux of the issue lies in China’s faltering economy. Once a powerhouse of growth, China’s GDP growth has dwindled from double digits to a mere 5.3 per cent in 2023. Despite official assurances, doubts linger regarding the achievability of targeted growth rates. Such economic uncertainty drives investors to seek greener pastures overseas.
“This goal aligns with the annual requirements of the 14th Five-Year Plan and is fundamentally matched with the potential for economic growth, representing a positive and achievable target with concerted effort,” said National Development And Reform Commission chairman Zheng Shanjie.
FDI hits three-decade low
Foreign investors, too, are wary of China’s economic trajectory. FDI (Foreign Direct Investment) in China plummeted to a 30-year low, with neighbouring economies like India and Vietnam outperforming China in attracting investment. This lack of confidence from both domestic and foreign investors exacerbates China’s economic woes.
Xi Jinping, China’s paramount leader, assumed office at the helm of a robust economy. However, his tenure has been marked by controversial decisions and geopolitical confrontations. From territorial disputes to the mishandling of the COVID-19 pandemic, Xi’s leadership has come under scrutiny contributing to China’s economic downturn.
Uncertain horizons for China
As China grapples with internal challenges and external pressures, the question arises: Is China’s era of economic dominance coming to an end? Structural issues like an ageing population, limited freedoms, and one-party rule compound the challenges facing the Chinese economy. The world watches anxiously as China navigates these turbulent waters uncertain of what lies ahead.
In the metaphorical voyage of China’s economy, the current storm signals a significant reckoning. The exodus of investors, both domestic and foreign, reflects widespread apprehension regarding China’s economic future. As China’s leadership seeks to steer the ship through turbulent waters, the world awaits the outcome, mindful of the profound implications for global economic stability.
Views expressed in the above piece are personal and solely that of the author. They do not necessarily reflect Firstpost’s views.