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What Should Jittery China Investors Do?

Concerns over Xi Jinping’s geopolitical ambitions and zero-COVID policy have put a damper on the Chinese stock and bond markets. Given growing anxiety about Xi’s domestic and foreign policies, global investors may want to reduce their exposure or be innovative about how they trade in, and with, China.

LONDON – The escalating Sino-American rivalry and the broader concerns about China’s economy have caused Western firms to reevaluate their operations there – and rightly so. Given the uncertainty surrounding President Xi Jinping’s economic policies and geopolitical intentions, it may be time for investors and corporate leaders to consider scaling back their exposure to Chinese assets and markets.

The events of the past year, particularly Xi’s dogged refusal to ease his strict zero-COVID policy and his confirmation as China’s first three-term president, have spooked global investors. Likewise, Xi’s “common prosperity” agenda, which aims to redistribute wealth from the wealthy to the poor and rein in the country’s new business elite, has been viewed as anti-business and damaging to economic activity.

As part of his common prosperity campaign, Xi pledged that the authorities would “reasonably regulate excessively high incomes and encourage high-income people and enterprises to return more to society.” With this kind of rhetoric, it is no wonder that China’s stock market dropped roughly 20% last year. China’s policies have also led to vast capital outflows and an accelerated sell-off of Chinese stocks. According to the Institute of International Finance, investors withdrew $7.6 billion from Chinese equities last month, along with $1.2 billion from the bond market.

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