Chinese Companies' IPOs 'All Stop'... $2 Trillion Withdrawn from Listed Stocks
Real Estate Companies Struggle to Raise Funds through Bond Issuance
[Asia Economy Reporter Kim Hyunjung] Foreign investors, exhausted by the zero-COVID policy and city lockdowns, are rapidly withdrawing from China. This is due to the limitations of a system where ideology overwhelms economic policy and market instability. However, some argue that from the end of this year, after the Party Congress confirming President Xi Jinping's third term, 'pragmatism' will return.
According to the British weekly magazine The Economist on the 22nd (local time), foreign investors' exit from China has recently accelerated due to President Xi's zero-COVID policy. Over the past year, $2 trillion (approximately 2,549 trillion won) has been withdrawn from Chinese stocks listed in Hong Kong and New York, and initial public offerings (IPOs) of Chinese companies in these securities markets have almost come to a halt.
Coupled with the sluggish local real estate market, related companies are finding it increasingly difficult to raise funds. According to data provider Dealogic, Chinese real estate companies have raised $280 million through high-yield dollar bonds this year, a sharp decline of about 98% compared to $15.6 billion during the same period last year. Additionally, the value of yuan-denominated financial assets held by foreigners in China fell by more than $150 billion in the first quarter of this year. The Institute of International Finance (IIF) in Washington forecasts that capital outflows invested in China will surge from $129 billion last year to $300 billion this year.
Hugh Young, an analyst at asset management firm Aberdeen, said, "Foreign investors have been overly enthusiastic about China in recent years, ignoring the inherent risks," adding, "Now the market is waking up." The international credit rating agency Standard & Poor's (S&P) recently predicted that the policy shocks to China's education, housing, labor, and social welfare sectors will continue for years and that the future will be much more ideological.
On the other hand, there is also a forecast that after the 20th Party Congress (scheduled for October), which will decide President Xi's third term, more pragmatic policies will drive and support the economy and companies along with the calming of COVID-19. A regional representative of a global asset management firm told The Economist, "After the Party Congress, pragmatists will have more control over policy," explaining, "The current ideology, policy mistakes, and sluggish growth are part of the preparations for the Party Congress."
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