Goodbye to China.  Russia plays a bad joke in Beijing

Goodbye to China. Russia plays a bad joke in Beijing

The strategic and military alliance with Putin is not the least bit appealing for funds, investors and savers, who have decided to let go and say goodbye to the Dragon since the invasion of Ukraine began. And so, after inflation and the real estate crisis, Xi has another problem

2022, escape from Beijing. There is the long wave of the war in the Ukraine behind the bleeding capital of China. Not that this is the first time around the Dragon, but if you put the different pieces of the mosaic together, the overall picture is certainly not rosy. Inflation gallops to the highest levels in years, the real estate crisis, tied hand in hand with sovereign debt, is far from being resolved and the Covid-0 strategy, bankruptcy from a health point of view, will also harm the economy.

There is enough to mortgage that growth that, although above the estimates for the first quarter of the year, runs the risk of closing breathlessly at the end of the year. Now we add the desire of not wanting to know more about the Dragon and its markets. The reason is quickly explained. The friendship of the Chinese president Xi Jinping with the Russian leader Vladimir Putin and that it has taken the form of a strategic and even military alliance, has made investors more suspicious of China, prompting them to abandon it. The lurking feeling among funds and simple savers is that China is willing to do anything to support its Russian ally, even at the cost of dragging the economy to the bottom. Fears are in a sense justified considering the ruthless blockade and fury that has been seen in Shanghai these days.

In light of all this, outflows of capital, bonds and mutual funds from the country accelerated after the Russian invasion of Ukraine. An example? The Norwegian sovereign wealth fund, with 1.3 trillion dollars in its belly, slammed the door at a request for help and support from a sportswear giant. Still, according to some qualified sources, private equity funds operating in US dollars and investing in China collectively raised just $1.4 billion in the first quarter, the lowest figure since 2018, in the same period.

In short, the formal and informal support for Russia and the sanctions that have hit the latter have generated a rethinking of Western attitudes towards China. But it is not only Russia that is making investors flee. According to the Institute of International Finance, the exits that “we are seeing are unprecedented in size and intensity, especially since we are not witnessing similar exits from the rest of the emerging countries. The timing of the departures coinciding with the invasion of Ukraine suggests that foreign investors may be looking at China in a new light, even if it is premature to draw firm conclusions.

But if a good day starts in the morning, official data shows how foreign investors reduced Chinese government bonds in their portfolios in February. Reason? The sanctions imposed on Russia have frozen the central bank’s reserves in euros and dollars, fueling speculation that Moscow will sell its Chinese bonds to raise funds.