The Chinese government’s mixed messages are whipsawing markets and keeping foreign investors wary of investing in China. Last year, Chinese President Xi Jinping tried to woo back foreign capital while also trying to reshape China’s business environment. President Xi is attempting to promote policies that will revive an economy that is weighed down by a struggling property market while strengthening national security as military and trade tensions rise with the U.S.
The latest events in China have given mixed messages to investors. On December 22, Chinese regulators shocked gaming companies with unexpected new rules to limit in-game spending and prohibit mechanisms to incentivize more playtime. That led to a selloff in gaming stocks that wiped $80 billion in market value from companies like Tencent Holdings. However, Reuters reported today that authorities fired the country’s top gaming regulator and said it may review the controversial new gaming restrictions, suggesting a heightened sensitivity to offending the markets.
Foreign companies operating in China are struggling to adapt to the government’s new clampdowns. Company executives are hearing business-friendly statements from top Chinese officials only to see authorities probe consultancy firms, expand a vague anti-spy law, and restrict access to data. Business leaders in China are concerned that the whiplash from China’s mixed messages on security and the economy is turning investors more cautious about investing in the country.
In any case, the mixed messages sent by the Chinese government have curbed foreign direct investment in China. A measure of foreign investment in China contracted for the first time since records began in 1998, highlighting how foreign companies are pulling money out of China. The most recent data available shows direct investment liabilities in the balance of payments, which records monetary flows connected to foreign-owned businesses in China, declined by -$11.8 billion in Q3 of 2023.
The near-term prospects for China’s economy look bleak, which may continue to weigh on foreign sentiment toward Chinese stocks. The China Dec manufacturing PMI unexpectedly fell -0.2 to 49.0, weaker than expectations of an increase to 49.6 and the weakest level in 6 months. Also, research company Young China Group said China’s shift toward “a more totalitarian environment” has resulted in growing anxiety about investing in China. In addition, the European Union Chamber of Commerce in China said, “Businesses do not know where they stand due to mixed messages from the Chinese government.”
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
