[News Terms] Investors Fleeing China, the China Run

Xi Jinping's Third Term, Big Tech Regulation and Continued 'Zero COVID' Expected
Accelerated Exit from Chinese Market... Weakest Yuan Since Financial Crisis

Chinese President Xi Jinping. [Image source=Yonhap News]

[Asia Economy Intern Reporter Yunjin Kim] Since the confirmation of Xi Jinping's third term as China's president, a 'China Run' phenomenon has occurred in the global financial markets. Chinese-related stocks have plummeted simultaneously, and the yuan has recorded its weakest level since the 2008 financial crisis, creating a sense of crisis in the Chinese market.

The 'China Run' refers to the phenomenon of capital outflow from China as economic uncertainty increases. It is a term applied from the 'Bank Run' phenomenon, where depositors rush en masse to banks to withdraw deposits amid concerns over the deterioration of bank soundness and potential inability to pay deposits. Investors are distancing themselves from the Chinese market, pessimistic about the economic policies under Xi's third term.

After the conclusion of the 20th National Congress of the Communist Party of China, Chinese-related stocks plunged sharply on the New York Stock Exchange, which opened on the 24th (local time). Leading tech stocks Alibaba fell 12.5%, and Pinduoduo dropped 24.6%. The market capitalization of the five major Chinese companies listed on the New York Stock Exchange evaporated by about $52.1 billion (approximately 75 trillion won) in one day. The Nasdaq Golden Dragon China Index, composed of 65 Chinese companies listed in New York, plunged 14.43%, marking its lowest level since 2009.

The Chinese financial market also shook. The Hong Kong Hang Seng Index fell 6.36% on the 24th (local time), recording its largest drop since November 2008 and closing at its lowest level since early 2009. The Chinese yuan exchange rate has shown its weakest level in 14 years since the financial crisis. The yuan hit a low of 7.25 per dollar the previous day and surged further to 7.33 per dollar on the 25th.

The emergence of the 'China Run' phenomenon after Xi's third term was confirmed appears to reflect the market's distrust of the new leadership's economic policies. The Standing Committee of the Politburo, China's top leadership, is entirely composed of Xi's close associates, known as the Xi Jinping faction. With no opposing forces, there are expectations that Xi's economic policies will continue to prioritize politics and security over economic growth. Bloomberg News in the U.S. evaluated, "(Under Xi's regime) ideology is taking precedence over pragmatism, increasing investors' concerns."

Specifically, as part of Xi's emphasized 'Chinese-style socialist modernization,' measures such as △strengthening regulations on big tech companies △increasing property and inheritance taxes △focusing on domestic demand development are anticipated. Since Li Qiang, the Shanghai Party Secretary who enforced the Shanghai lockdown, has risen to the position of Premier overseeing economic policy, it is expected that the 'Zero COVID' policy, which severely impacted the Chinese economy, will continue for the time being. Jean-Pierre Cabestan, honorary professor at Hong Kong Baptist University, warned the New York Times, "The return to Marxism will deepen more than anyone expected."