Translator:Julia Gao
Proofreader: YunChing

Source of picture: The Epoch Time Design Group

Russia-Ukraine war and CCP’s harsh ‘Zero COVID’ policy have increased fears of foreign investors and resulted intensified withdrawal. 

Russia’s invasion of Ukraine and the draconian ‘Zero COVID’ policy imposed by the Chinese Communist Party (CCP) in Shanghai have shocked the world, accelerating the withdrawal of the foreign companies and the outflow of money invested in Chinese stocks, bonds and mutual funds.

According to Mr. Miles Guo in his live broadcast, even the investment giants, the long-term “old friends” of the CCP, such as Goldman Sachs and Blackstone, are now scrambling to sell off their assets in China, which shows the Western investment community are unoptimistic about the future of the CCP’s economy.

Simon Edelsten of Artemis Investment Management LLP believes that after a series of sanctions against Russia, the Wests have to rethink its investment in China.

The management company that manages US$37 billion in assets, sold all of its China-related investments last year after intervention to withdraw the much-anticipated IPOs of Didi and Ant Group last year, arguing that such investments were detrimental to shareholder rights.

China’s increasingly assertive rhetoric on Taiwan and its sovereignty claims in the South China Sea are also deeply troubling to foreign investment teams, Edelstein said. Europe’s sanctions against Russia have shown that even closer trade ties do not guarantee diplomatic security.

The Russian-Ukrainian war has greatly increased these risks, and our fund’s allocation weight to China will probably remain at a very low level for the next few years.

Norway’s $1.3 trillion sovereign wealth fund dropped Chinese sportswear giant Li Ning due to human rights concerns, and private equity dollar funds investing in China raised a paltry $1.4 billion in the first quarter, the lowest level for the same period since 2018.

Brendan Ahern, chief investment officer at Krane Funds Advisors LLC, said international investors have been selling Chinese stocks indiscriminately, regardless of price, over the past year.

His firm manages exchange-traded funds (ETFs) focused on the China market and is gradually replacing its U.S. mid-cap holdings with Hong Kong stocks in order to reduce risks.

The CSI (China Securities Index) 300 index is down about 15% so far this year, with a Sharpe ratio of -2.1, among the lowest in the world and only slightly higher than the bottom of Sri Lanka’s Colombo All Share Index.

Compared with Morgan Stanley’s Global Equity Index, the China index is currently near its lowest level since 2014. For the first time since 2010, China’s 10-year Treasuries offer no spread over U.S. bonds over the same period. Returns in the high-yield Chinese dollar bond market last quarter had the worst performance in at least a decade.

Global funds are starting to pull out, with international investors selling more than $7 billion of A-shares in March and also dumping $14 billion of Chinese Treasuries and reducing their holdings of credit bonds over the past two months.

Bearishness on China is considered the fifth most popular trade in the latest Bank of America investor survey. According to foreign media reports, China lost $17.5 billion in foreign capital in March, an all-time high record. Analysis suggests that this capital flight by overseas investors is “unprecedented”.

The European Union Chamber of Commerce in China published on May 5 a report on the impact of the COVID epidemic and the Russian-Ukrainian war on European companies in China.

The report revealed that 78% of the companies surveyed said that investing in China has become less attractive; 11% of the companies surveyed explicitly said that the Communist Party’s anti-epidemic policy has directly led to their decision to scale down their business in China; and 23% have started to consider shifting their investment out of China, the highest in the past decade.

The European Union Chamber of Commerce in China currently has more than 1,700 member companies. As a result of the Communist Party’s “Zero COVID” policy, 75% of the companies surveyed said it was difficult to carry out their most basic production and business activities; 94% said logistics and warehousing were under pressure; 97% and 94% said they had to suspend business contacts and cancel offline meetings respectively.

In March, German Frankfurt Airport company sold its stake in Xi’an Xianyang International Airport to a local buyer, ending a 14-year business operation in China.

The U.S. semiconductor company, Onsemi announced on April 18 the closure of its China global distribution centre in Shanghai, citing the reason for the closure is that the Chinese Communist government’s lockdown and control policy has affected the business.

Ayazi Fashion, a wholly owned subsidiary of Danish fashion retailer Bestseller, decided to close all of its brand SELECTED’s offline retail stores in China by July 31 this year, a total of about 1,300 stores.

Slade’s notice letter for the termination of its retail business stated that the “significant reduction in traffic in offline shopping centres and department stores” made it difficult to recover sales and that it could not afford the high cost of the stores.

Scott Conking, the regional head of U.S. fund giant Vanguard Group Inc., announced to the employees at the Shanghai World Financial Center in March that the company would pull out of China and abandon its push for a mutual fund license.

On May 9, the American Chamber of Commerce in China (AmCham) released a survey showing that nearly 60 percent of U.S. companies surveyed in China have lowered their revenue expectations for 2022, and over half said their investment plans in China have been delayed or they have plans to reduce their investments.

The survey which was conducted between April 29 and May 5 that involved 121 U.S. based companies in China was to understand the impact of the new outbreak of COVID.

Colm Rafferty, President of the American Chamber of Commerce in China, said entry into China remains difficult and an exodus of foreign talents is expected this summer. More than half of member companies have postponed or scaled back their annual investment plans in China, he said.

A previous survey conducted by the Shanghai Japanese Chamber of Commerce and Industry from April 27 to April 30 showed that 80 percent of Japanese-owned enterprises in Shanghai had stopped work and production during the lockdown, and less than 40 percent had obtained operating permits, while more than 60 percent were applying or had not yet applied for permits.

The survey conducted by the European Union Chamber of Commerce in China from April 21 to April 27 showed that the percentage of European companies considering moving their investments in China nearly doubled to 23% compared to two months ago.

Several Chinese media reported on May 7 that Texas Instruments has cut its MCU (Micro Control Unit) team in China and relocated all MCU production lines to India. Although industry insiders believe that Texas Instruments is cutting its MCU R&D team in China for commercial reasons, it still raises concerns in the market.

In January 2022, U.S. semiconductor giant Micron laid off its DRAM R&D team in Shanghai and facilitated the departure of its core technical staff to the United States.

In early 2021, IBM closed the IBM China Research Institute, one of IBM’s 12 global research institutes.

The impact of the Russian-Ukrainian war and the COVID epidemic have exacerbated the withdrawal of foreign companies from China. In fact, this dynamic has been underway since the US-China trade war launched by President Trump in 2018, but new changes are driving the “US-China decoupling” at an increasing pace.

Foreign investors have pulled money out of China at an “unprecedented” rate since Russia’s invasion of Ukraine in late February, but inflows to other emerging markets have continued to grow, signalling a “highly unusual” shift in capital flows to global emerging markets, said a March 24, 2022, report by a U.S. think tank.

Biden’s Asia trip escalates China-US confrontation

U.S. President Joe Biden has just completed his first visit to Asia since taking office. During the trip, Biden changed the vague policy of the U.S. on forceful defence of Taiwan and for the first time answered “Yes” clearly on whether the U.S. would intervene militarily if Taiwan was attacked by the Chinese Communist Party.

At the same time, the United States also publicly stated for the first time that it supports Japan becoming a permanent member of the UN Security Council.

Both are moves that seriously cross the so-called “red line” of the Chinese Communist Party and are beyond its reach in any way. Thus, anyone with a clear eye will understand that the confrontation between China and the U.S., which has been going on since the Trump era, has escalated to a new level from which there is no turning back.

It is a bipartisan consensus in the United States that the United States is an enemy of the Chinese Communist Party and represents the mainstream public opinion in the United States, thus, no one can change the trend of tough confrontation between the United States and the Chinese Communist Party. This situation is likely to escalate sharply at any time into a military confrontation between the two powers due to the CCP’s increasingly eager military adventures in the armed reunification of Taiwan.

Any investor who has even a doubt about the worst possible prospects for U.S.-China relations and accelerates their flight from China or even away from China concept investments is the most natural choice, and the withdrawal of foreign investors from China and their avoidance of China concept investments will only intensify.

Financial predator Soros blasts CCP and Xi Jinping in high profile

Soros, a leading figure on the global left, has recently made a series of high-profile statements against the Chinese Communist Party and Xi Jinping’s far-left policies. He stressed that Xi Jinping “treats all Chinese companies as tools of a one-party state” and therefore “investors buying bullishly are facing nothing but a dream.”

Soros believes that many U.S. companies are in bed with China. He criticized BlackRock, formerly the financial asset management arm of BlackRock and later a separate entity from BlackRock, for investing in China “in a way that endangers the national security interests of the United States and other democracies, because the money invested in China will help support Xi Jinping’s regime, which is repressive internally and aggressive externally.

He recommends U.S. legislation that “explicitly requires asset managers to invest in companies that have both actual governance transparency and alignment of interests with shareholders” and “authorizes the Securities and Exchange Commission to restrict the flow of funds into China.

Published by:Wenwu

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