Global money is leaving China

Global investors are leaving China due to concerns over the country’s anti-market gestures, including the strict “Covid Zero” policy under President Xi Jinping and growing possibility for geopolitical tensions.

Bloomberg reported on Sunday (local time) that Ruffer, a British investment firm with 3.1 billion U.S. dollars (about 41 trillion won) of assets under management (AUM), recently shut down their Hong Kong office, which had been under operation over 10 years. “The supertanker of Western capital is starting to turn away from China,” said Matt Smith, an investment director at Ruffer. “It’s just easier to put China aside for now when you see no end in sight from Covid Zero and the return of geopolitical risk.”

Volatility in Chinese financial market is expanding as the exit of foreign investors are accelerating this year. According to The Wall Street Journal, 45.03 billion dollars (about 59 trillion won) were leaked from Chinese bond market during February to April this year.

The CSI 300 Index of stocks, one of the most important Chinese stock market index, is down about 27 percent from a peak 17 months ago, lagging the S&P 500 by almost 26 percentage points. Allocations to China among emerging-market equity funds is falling to the lowest level in three years, Emerging Portfolio Fund Research (EPFR) Global, a fund intelligence company, said in a report early this month.

Some analyzed that China’s advocation toward Russia, which invaded Ukraine, fanned the exit of foreign investors. Bloomberg’s article mentioned that a number of foreign investment firms “have been requested from their clients to reduce exposure to Chinese market in their portfolio because of rising geopolitical risks.” This is an indication that investors have judged it would be risky to put their money in China amid a new cold-war era, while the U.S. has their eyes on China, pressing the country by closely building network with India, the Pacific, and Europe.

Asia Research Team of City Group stated in their report that “clients are dropping their Chinese market engagement to a surprisingly low,” thus will “focus on South Korea and India instead”. Carlyle Group also decided to cut exposure to China in their 8.5 billion (11. 2 trillion won) worth of Asia Investment Fund and expand those for South Korea, South East Asia, Australia, and India.

Chinese President Xi, after taking the office in 2013, has been attempting to make the Chinese yuan as a key currency against the U.S. dollar by allowing direct share trading between Shanghai and Hong Kong exchanges. However, some say the recent U.S.’ monetary policy revealed the limitations of the Chinese currency and its financial market against the “Super Dollar.” The Financial Times recently featured an article saying that the world’s distrust to Chinese financial system is the biggest reason that China cannot be a financial superpower.


Hyoun-Soo Kim kimhs@donga.com