In a Nutshell, European Money is Leaving China — citing lost “allure as an investment destination”
The Financial Times sums up the serious and systemic structural problems with China’s economic model — demographic trends of low birth rates and their large number of senior citizens, combined with China’s hard-line Covid restrictions, plus the collapsing real estate sector and a construction financing system that is plagued by debt and unbuilt projects — all while local governments are having great difficulty paying their construction bond’s higher-than-market rate interest rates due to a massive drop in property sales which accounted for about 40% of local government revenues.
Here is a partial excerpt from the Financial Times, China’s property crash: ‘a slow-motion financial crisis,’ is quoted, in part, below:
The European Chamber of Commerce in China this month put out its “most dark [position] paper ever”, according to Jörg Wuttke, chamber president. The chamber warned that “European firms’ engagement [in China] can no longer be taken for granted” and added that China was quickly losing “its allure as an investment destination”.
The chamber, which counts more than 1,700 corporate members, noted that Beijing’s “zero-Covid” policies, the country’s “debt crisis”, the unravelling of the real estate sector, demographic headwinds and stalling consumer spending were all contributing to a tougher operating environment for European companies.
“The growing list of challenges is pushing many to reduce, localise and silo their China operations,” the EU position paper said.
Among foreign portfolio investors, the enthusiasm for the Chinese stock market of a few years back has turned to dust.
“I would say Chinese holdings will probably for an international money manager be at the lowest level in a decade,” says Andy Maynard, a trader at investment bank Chinese Renaissance in Hong Kong. “What was a darling from 2018 to 2021 has become the basket case, and the prices have reflected that,” he adds.
“You can speak to big US-based hedge funds that are prolific in this part of the world and they don’t have a single position in China.”