A surge in investments in Chinese assets is being witnessed among global financial institutions. This is driven by increasing confidence in China’s economic recovery and contrasts sharply with other major economies like the US, where rising economic risks are becoming more prominent.
China’s Attractive Investment Landscape
Investors worldwide have been focusing on China’s financial market, lured by the country’s economic revival and driven further by signs of difficulties in the US economy, such as its recent credit rating downgrade. These factors may accelerate the trend of foreign investments flowing into China, say analysts.
China has been proactive in supporting its overall economic growth and is rapidly simplifying investment in its assets for foreign investors. This move contrasts sharply with US politicians, who are pushing for more restrictions on American institutions investing in China. Analysts predict that global financial institutions will continue to increase investments in Chinese stocks and bonds in the coming months.
Growing Optimism and Key Investments
The trend of global financial institutions investing in the Chinese market has become more pronounced in recent months. In a significant development, Bertelsmann Investments, one of Germany’s largest venture capital funds, plans to inject $700 million into Chinese start-ups, as reported by the Financial Times (FT).
The CEO of the firm, Carsten Coesfeld, expressed that Western media’s portrayal of China’s economic recovery since the pandemic is sometimes at odds with reality, according to FT. While some foreign media continue to report an economic slowdown in China, many foreign institutions maintain a positive view of the Chinese market.
A review by Global Times of research notes and market analysis by major global financial firms—including Goldman Sachs, HSBC, UBS, Standard Chartered, and Morgan Stanley—revealed a predominant optimism regarding the Chinese market. Only Morgan Stanley displayed some reservation, stating that “investor confidence and conviction level are still very fragile.”
However, Standard Chartered, Goldman Sachs, and HSBC continue to be upbeat. Standard Chartered’s weekly market report highlighted that global stocks dropped for the first time last week after Fitch’s downgrade of the US’ credit rating. The report also emphasized that China’s undervalued equities would benefit from a rotation in stocks from developed markets as China fine-tunes property policies and stimulates consumption.
China’s Market Influence and Performance
In the first half of 2023, Standard Chartered’s onshore and offshore China business experienced a fourfold increase in pre-tax profits to $700 million. The Chinese market has become the largest contributor to Standard Chartered’s total revenue, as per a statement sent to Global Times.
“China is the power source of world economic stability and growth, and Standard Chartered is firmly optimistic about China’s long-term development,” said Zhang Xiaolei, the head of Standard Chartered China.
UBS also expressed bullish sentiments on Chinese stocks, attributing this to measures to enhance consumption. These targeted measures to stimulate the purchase of automobiles, electronics, and home appliances will not only spur the revenue of related companies but also aid platform companies, UBS’s report stated.
Yang Delong, Chief Economist at Shenzhen-based First Seafront Fund Management Co, emphasized the fast-paced influx of foreign capital into China’s A-share market to the Global Times. Yang noted that foreign capital into A shares had surpassed 180 billion yuan so far this year, doubling last year’s figures. “Foreign investors are accelerating their purchases,” he said.
China has witnessed a substantial uptick in inbound foreign direct investment (FDI) during the first half of 2023. The country recorded a net inflow of $32.3 billion, marking significant growth in investments in Chinese stocks, and a return to net inflow in investments in Chinese bonds, as indicated by Wang Chunying, spokesperson for the State Administration of Foreign Exchange (SAFE).
Factors Driving Investment
Hu Qimu, chief research fellow at the Sinosteel Economic Research Institute, pointed to various factors contributing to this global investor enthusiasm for Chinese assets:
- Emerging Industries: The rising competitiveness of China’s emerging industries, like electric car batteries, has captured investor attention.
- Policy Support: China’s growing policy support for foreign investment, coupled with recession risks in the US and Europe, makes Chinese assets attractive.
- Undervalued A Shares: Market dynamics such as undervalued A shares have also piqued investor interest.
“The Chinese market will be further opened up, and there are many supportive policy measures for the domestic economy. That means that there is a period of policy bonus for foreign capital to enter the Chinese market,” Hu told the Global Times.
Proactive Policy Measures
In addition to existing measures that enhance various aspects of the economy, including consumption and the private sector, Chinese policymakers are promising even more vigorous policies to strengthen the economy. They’re considering cuts to the reserve requirement ratio and implementing targeted policies to enhance the business climate for foreign enterprises in China.
Last week, during a planning meeting for the second half of 2023, the People’s Bank of China and SAFE announced their intent to ease foreign investors’ holdings of yuan assets, and orderly promote the internationalization of the yuan. This further opening of China’s capital market, increasing foreign capital participation, is anticipated to bring more liquidity and vitality to the A-share market.
“With the gradual implementation of a series of policies to stabilize economic growth, China’s economy is expected to accelerate its recovery in the second half of the year,” said Yang, further fueling optimism in the market.
U.S. Opposition and Its Limitations
Despite China’s strides to open up its market and foster opportunities for foreign investors, some U.S. politicians are advocating for more restrictions on investments in the Chinese market. This push is driven by what is perceived as a Cold War mentality and an exaggerated concept of national security.
Mike Gallagher, chair of the so-called China committee of the U.S. House of Representatives, has urged President Joe Biden to expand a reported forthcoming ban on certain U.S. investments in China to include U.S. firms’ purchases of Chinese stocks and bonds. Gallagher highlighted that over $200 billion of U.S. capital is invested in Chinese companies through private markets, and more than $1.1 trillion of U.S. capital is invested in public markets in Chinese stocks and bonds.
However, as Hu emphasized, such radical moves are unlikely to halt U.S. firms from pursuing profits in the Chinese market through investments. “The U.S. still depends on these big capital firms, and this is something politicians cannot easily challenge,” he said.
Analysis and Implications
China’s recent spike in foreign investments can be seen as a multifaceted phenomenon:
- Positive Economic Outlook: China’s ongoing economic recovery and policies aimed at stimulating growth are drawing investors seeking stable returns.
- Geopolitical Dynamics: While the U.S. imposes restrictions on Chinese investments, other countries might find China a more welcoming investment landscape.
- Technological Advancements: China’s leadership in emerging industries like electric vehicle technology is positioning the country as a hub for innovation.
- Market Accessibility: Ongoing efforts to make China’s financial markets more accessible to foreign investors provide more gateways for investments.
Conclusion
China’s increasing investments in the first half of 2023 are indicative of a more extensive trend of global confidence in the Chinese economy and market. Driven by a blend of domestic policy initiatives, technological advancement, and global economic conditions, investments in Chinese assets are flourishing.
The Chinese government’s willingness to open up markets and provide supportive policy measures stands in stark contrast to some Western countries’ moves to restrict investments. This divergence might result in a long-term shift in global investment patterns, cementing China’s place as a preferred destination for international investors.
The complex interplay between China’s openness to foreign investment and efforts by some U.S. politicians to restrict investments in China represents a critical aspect of the broader U.S.-China economic and political relations. The unfolding of these dynamics will have lasting implications for international business and geopolitics.
The trend of increasing investments in China offers a vital insight into the country’s economic prospects and the global economic landscape, reflecting both the opportunities and challenges in today’s interconnected world. The decisions and actions of policymakers, businesses, and investors will continue to shape these dynamics as China’s role in the global economy evolves and expands.