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Capital Outflow: Foreign Investors and China's Affluent Redirect Funds

Published by Tavex Analysts in category Market News on 25.10.2023
Gold price (XAU-GBP)
1,833.74 GBP/oz
  
- GBP37.20
Silver price (XAG-GBP)
23.72 GBP/oz
  
- GBP0.49

China experienced a startling net money outflow of $53.9 billion in September 2022, mirroring similar trends recorded in 2016. The current situation reveals deeper structural concerns in contrast to the previous incident, which was the result of a brief panic among investors. The country’s economic environment is changing dramatically as foreign businesses rebalance their presence and wealthy Chinese ponder emigrating.

In September, China’s net money outflows hit $53.9 billion, the largest level since January 2016, when net outflows totaled $55.8 billion.

Foreign companies have accelerated capital outflows as they sell off their assets as they leave China

China’s Money Drain: What’s Behind the Exodus?

The problems this year are more structural, as wealthy Chinese are attempting to move their wealth abroad while foreign investors are putting their operations in China on hold and withdrawing capital. Last year’s money outflow was the result of a short-term panic among investors in response to a sharp decline in the yuan’s exchange rate.

“Foreign companies have accelerated capital outflows as they sell off their assets as they leave China,” Toru Hishihama, a Japan-based economist, told Nikkei Asia.

In July of this year, the number of foreign companies working in the industry fell to its lowest level since November 2004, and the trend may continue. As a result, the net outflow of money in the sphere of foreign direct investment was the biggest. In September, foreign investors took $26.2 billion out of China, the biggest sum since 2010, when data on this issue was first collected.

Beijing’s Policies: A Deterrent to Global Investment?

The Chinese government’s severe policy may have affected foreign investors’ decision to leave China. Beijing announced new anti-intelligence rules in July, broadening Chinese officials’ legal authority to snoop on foreigners posing a threat to national security.

Foreign portfolio investments in Chinese stocks and bonds were also down $14.6 billion. Foreign investors invested $436.9 billion in Chinese equities in September, a fifth less than at the start of 2022.

After the Shanghai market index plummeted to its lowest level since 2019, Beijing’s government was forced to begin purchasing listed companies’ stocks through a special fund set up for that purpose. According to the Financial Times, the change has had little influence on share prices thus far.

Wealthy Chinese departing the nation is another source of concern for Chinese officials. Many affluent Chinese people want to leave China and take their fortunes with them.

Beijing Strikes Back: New Restrictions in Play

Over 700,000 Chinese are preparing to leave their motherland in the next two years, according to the real estate consultancy Juwai IQI. Purchasing property in another nation may be part of your emigration strategy. The most popular property purchasing destinations among wealthy Chinese, according to The Straits Times, are Australia, Canada, and the United Kingdom.

Beijing has asked that stockbrokers shut down apps that allow Chinese individual investors to purchase foreign assets by the end of October

The Chinese government has responded by implementing further limitations. Beijing, for example, has asked that stockbrokers shut down apps that allow Chinese individual investors to purchase foreign assets by the end of October.

The Yuan’s Decline: Echoes of a Troubled Economy

The yuan, China’s national currency, continues to decrease in value as a result of economic woes and capital outflows. As a result, the yuan’s exchange rate against the US dollar has fallen by 6% since the start of the year. On Tuesday, Chinese President Xi Jinping paid his first visit to China’s central bank since taking office, indicating the Chinese authorities’ concern over the situation.

Several causes have contributed to China’s current economic situation. Sensing the shifting sands, foreign corporations are selling assets and decreasing operations, resulting in a dramatic decrease in the number of foreign companies operating in China since 2004. Beijing’s strict regulations, particularly new anti-intelligence rules, have further discouraged foreign investment. On the other hand, wealthy Chinese who are concerned about the current economic situation are considering emigration, with popular destinations including Australia, Canada, and the United Kingdom. Despite these difficulties, the yuan’s exchange rate continues to fall, indicating deeper economic problems.

Gold price (XAU-GBP)
1,833.74 GBP/oz
  
- GBP37.20
Silver price (XAG-GBP)
23.72 GBP/oz
  
- GBP0.49

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