Wall Street increasingly sees China as uninvestable 

“All of our clients are asking that question. Given how cheap China looks, people will inevitably say, did we ignore the worst news?”

Sharmin Mossavar Rahmani, chief investment officer of Goldman Sachs’ wealth management business, spoke on Bloomberg TV earlier this month to highlight questions investors around the world are asking these days. Then she answer: “Our view is that you should not invest in China.”

Once upon a time, Goldman, like the rest of Wall Street, was obsessed with Chinese stocks. It’s different now. This storied financial powerhouse is now facing reality. Mossavar Rahmani’s point is correct. Because Chinese companies remain a scary bet and always will be.

Yes, Chinese stocks Already lost $7 trillion in value Since the peak in 2021, the worst news from China has gone largely unnoticed. The country’s economy is rapidly collapsing and strong leader Xi Jinping is determined to steer China in the wrong direction.

For decades, Wall Street fundamentally misunderstood China.the country looked modern technologically advanced stock market. Investors were fascinated.

However, contrary to appearances, the Chinese state was not modern, and neither were its markets. Stock prices have always been influenced more by government policies than by corporate performance itself.

The same is true today, especially since the Communist Party under Xi’s leadership has returned to open dictatorial rule on the whim of one individual. As in the Maoist era, the regime is relentlessly reasserting its control over China.

As a result, the Chinese market suffered. Consider the pivotal moment in international sentiment for this decade: Ant Group’s initial public offering. The IPO, expected to be the largest in history, had a set raising amount with an over-allotment option. $39.5 billion Investors evaluated the 6-year-old company as follows: $359 billionmaking it worth more than Industrial and Commercial Bank of China, the world’s largest bank by assets.

On November 3 of the same year, Shanghai’s Nasdaq-like STAR Market and the Hong Kong Stock Exchange Suspension of provision Approximately 36 hours before Hong Kong trading. This unprecedented move shocked investors in China and abroad.

what happened? Jack Ma, the driving force behind Ant; Speech in Shanghai infuriated Chinese regulators Last month, and from most accounts, Xi Jinping himself decided Pause your Ant offering.

With this action, the Chinese regime called into question the health of China’s stock market and, more broadly, the long-term viability of the country’s private sector.As Mr. Chen Zhiwu of the University of Hong Kong told the Financial Times“The message is that big private businessmen are not tolerated on the mainland.” Mr. Xi demands absolute obedience, which is at odds with the modern financial system. Communism and modernity in China do not mix.

Two subsequent trends contributed to renewed skepticism. First, a wide-ranging attack on President Xi’s overseas business was revealed through coercive means. US-based Mintz Group’s Beijing office closed Last March. Authorities subsequently raided other foreign consulting and research firms. Bain & Company.and cap vision.

Furthermore, the government Revised the anti-espionage law To cover more than just a secret. Currently, the law protects anything and everything related to “national security and interests.” The Communist Party has effectively criminalized routine business intelligence gathering, making investing in China even more risky.

More fundamentally, strict COVID-19 lockdowns hurt China’s economy, and it did not recover as quickly as observers had expected.China’s official National Bureau of Statistics Reported 5.2% growth But in reality, the growth rate was much closer to this. 1.5% estimated by Rhodium Group. Consumer sentiment has been weak this year, persistent factory deflation It suggests that the economy may be currently contracting.

The failure of the Chinese leadership to articulate a realistic recovery plan does not improve investor sentiment. This was made clear through the central government’s investment plan for China announced at the just concluded annual National People’s Congress. manufacturing industrysaid they are trying to export their way out of economic hardship.

To the dismay of many stakeholders, the government unveiled no substantive plans to stimulate consumption, which was seen as the only sustainable path forward. In addition, those involved are announced that it would probably abandon dozens of failed real estate developers. The real estate sector, which accounts for about one-fifth of gross domestic product, is collapsing. Sales of 100 major real estate companies in China for the period from January to February 51.6% decrease From the same time last year.

In addition, Xi Jinping cannot stop mentioning war, especially Taiwan and Philippines.

No wonder investors are pulling money out of the Chinese market. As reported by BloombergThe value of Chinese stocks held by foreign investors fell for the second consecutive year in 2023.

Wall Street has had enough. China has become “uninvestable” and almost every trend is going in the wrong direction.

Gordon G. Chan is the author of “China’s Coming Collapse” and “China Is Going to War.” Follow him on X (formerly Twitter). @GordonGhang.