China’s most powerful leader, Xi Jinping, was re-elected and introduced the new leadership team after the Chinese Communist Party concluded its national congress.
The following day, a panic selling of Chinese stocks spread from Hong Kong to New York. According to Bloomberg data, offshore investors sold a record net of 17.9 billion yuan or $2.5 billion.
One week after the Chinese Communist Party’s congress concluded, China’s shares listed on the Hong Kong stock exchange slumped by 8.8% in a historic rout. It’s the worst drop for a week since the index was launched in 1994.
In mainland China, the stock market also fell but at a slower pace.
The CSI 300 Index was down 5.4% for the week, which was the worst performance in the past 15 months.
The Shanghai Composite and the Shenzhen Component ended the week at least 4% lower. Both benchmarks hit their lowest levels in six months.
Meanwhile, the yuan hovered near its 15-year low in the last session of October.
Data from MarketWatch shows that the yuan traded at around 7.25 yuan per dollar on October 28, after falling to its weakest level since 2007 October 24. The Chinese currency has lost 14.1% so far this year.
The large sales in China-related assets were shocking when China announced the bright-than-expected third-quarter GDP data. China’s economy rose by 3.9% in the third quarter from a year earlier.
Market Watch cited Fawad Razaqzada, market analyst at City Index and Forex.com, saying the selloffs of Chinese stocks came due to expectations that the world’s second-largest economy is toward a more state-led model.
Christina Woon is the investment director for Asia equities in Singapore. She said it’s hard to say how the selloff plays out, but a sustained recovery in investor confidence is still dependent on developments like changes to China’s zero-COVID policy.
Unfortunately, investors are also concerned about the country’s zero-COVID policy.
American businesses operating in China have lost confidence after the spring months-long Covid lockdown in Shanghai. They cite continuous threats of closures, travel curbs, and supply chain interruptions as reasons to shift investments.
An annual survey by the American Chamber of Commerce in Shanghai shows that more U.S. companies have lost their interest in China this year.
The business group, also known as AmCham Shanghai, released the results on October 28. The study was conducted based on 207 companies between July 14 and August 18.
19% of the companies confirmed that they were withdrawing investment from China. This was a 10% increase from last year. There is also a 27% fall compared to the previous year in companies ranking China as their top investment option worldwide, which is 18%.
When AmCham Shanghai inquired about the five-year business outlook, only 55% of the surveyed firms were optimistic. The reading is the lowest in the survey’s 23-year history.
In addition, Julian Evans-Pritchard, senior China economist of Capital Economics, said, “There is no prospect of China lifting its zero-COVID policy in the near future, and we don’t expect any meaningful relaxation before 2024.” “Recurring virus disruptions will therefore continue to weigh on in-person activity and further large-scale lockdowns can’t be ruled out.”
The zero-COVID policy also exacerbates the weakness in the country’s debt-laden property sector. Accordingly, China saw the worst semi-annual report in its real estate industry history.
Leju Finance and Economics statistics show that, as of August 31, 169 listed real estate companies have announced their financial reports for the first half of this year.
Among them, profits have fallen for 129 companies accounting for as much as 76%, including 55 losses, for a total loss of 59.5 billion yuan or $8.5 billion.
Among the loss-making real estate companies, R&F Properties suffered a loss of over 6.92 billion yuan or $992 million in the year’s first half.
CCRE Real Estate followed with over $800 million, the most significant loss since its establishment.
The third most significant loss is from Ronshine China, with a loss of nearly $636 million in the year’s first half.
Country Garden, the largest real estate company by market value, made a profit of $88 million in the first half of the year, down 95.9% from the same period last year.
Investors are worried the real estate market might collapse one day and hope the Chinese regulators can deliver more policy support to ignite a sales turnaround.
Yet, Evans-Pritchard said, “There are also few signs of an imminent turnaround in the property sector.”