fforeign investors Influx of China in the past two weeks. For all but a few, it was their first trip in three years as the country quarantined itself to rule out covid-19. Those who entered at the peak of China’s zero outbreaks spent weeks in quarantine and found society under suffocating lockdown.
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Unsurprisingly, according to the latest official data, the value of onshore equities held by foreigners had fallen to 3.2 trillion yuan ($470 billion) as of December last year, accounting for about 4 percent of mainland China’s total market capitalization, less than 4.3% a year ago. Meanwhile, the value of private-equity deals in China plummeted 53% last year compared to previous levels, according to consultancy Bain & Company.
Chinese leaders are now asking global investors to forget the past three years. Reopening parties have been taking place in recent weeks, starting with a high-level development forum in Beijing that featured executives including Tim Cook of U.S. tech firm Apple and Redario of U.S. investment firm Bridgewater Associates. On March 31, the Boao Forum, sometimes referred to as the “Davos of Asia,” wrapped up its festivities.
Here, foreign investors heard Li Qiang, Mr. Xi’s newly promoted deputy, double down on promises of reform and opening up. The announcement of the event reminded visitors that “China’s door will open wider and wider”, and investors are welcome to “share more dividends of China’s opening up and development”.
In mid-March, Chinese regulators added more than 1,000 mainland-listed companies to the list foreign investors can access through the Shanghai-Hong Kong Stock Connect, which connects Hong Kong investors with mainland stocks. It’s the biggest institutional overhaul in years, opening up about 90 percent of the mainland’s stock market capitalization to foreign investors. These changes alone ushered in $4 billion in inflows in the first three weeks. Analysts at Goldman Sachs reckon that if foreign investors buy a similar share of the shares as others in the plan, they could end up bringing in $60 billion in foreign capital.
Another way for foreigners to invest in Chinese companies is to go public abroad. Regulators are clarifying how future overseas listings will work. Beginning March 31, Chinese companies planning to list abroad must submit documents to local regulators within three days of applying to list. A “variable interest entity”, the ownership structure adopted by most overseas-listed companies to circumvent foreign investment restrictions, was recently recognized by authorities after years of obscurity. Research firm Longzhou Economics predicts that the rules will mean more domestic IPOs and fewer overseas IPOs. But, by being explicit, the rules should reduce the regulatory risks that plague overseas listings, as one investor pointed out.
How much will Beijing’s charm offensive change the mood? The country’s stock market experienced strong inflows in January and February, but the reopening frenzy has faded. Foreign investors sold $26 billion in bonds in the first two months of the year. Ashish Agrawal of Barclays said a major improvement appeared unlikely in the coming months.
For many investors, a trip to China has not helped shake off deep concerns about the direction of the country. The recent cabinet reshuffle has strengthened Xi Jinping’s grip on power. Relations with the US are at their lowest ebb in decades. Xi Jinping was meeting Vladimir Putin in Moscow just as many investors were arriving in Beijing for a high-level forum on China’s development.
Several investors with decades of experience in China said they were concerned about China’s growing opacity. Analysts abroad are finding it increasingly difficult to grasp data that used to be publicly available. Companies providing company ownership information can no longer be accessed from overseas. In mid-March, bond pricing data disappeared from the information provided by suppliers. That forced traders in one of the world’s largest fixed-income markets to frantically exchange data via text messages. The suspension ended a few days later without explanation, but trading volumes plummeted 60%. Investors will need to be able to verify promises by officials to improve business conditions if they are to be believed. ■
Correction (April 11, 2023): This article previously converted RMB 3.2 to USD 470 million instead of USD 470 billion. sorry.
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