Foreign investors dump Chinese stocks worth record $2.5 billion amid panic selling triggered by Xi Jinping’s rise

China’s zero covid policy makes sure that business comes to a halt whenever cases increase, and these shutdowns have slowed down China’s growth in 2022 to 3.3 per cent as opposed to an expected 5.5 per cent. This drop in growth rate is going to cost China almost $400 million of its GDP, but the policy isn’t going away soon since Xi Jingping has been tightening his control in the politburo since he won a third term in office. After market reformists were moved out of the seven-member committee of policy-makers, foreign investors have started panic selling.

Hong Kong feels the heat of developments in Beijing

The Hang Seng index in Hong Kong has plunged to its worst level since the 2008 financial crisis, as foreigners dumped Chinese shares worth a record $2.5 billion. Apart from further reforms becoming unlikely under Xi’s rule, investors are also afraid that the zero-covid policy will continue to induce shut downs, leading to uncertainty. Although the regime’s approach will only be clearer after a Central Economic Work Conference scheduled for December, market sentiment is highly negative about Chinese stocks.

India emerging as viable option

Despite Chinese economy picking up pace in the July-September quarter to deliver a 3.9 per cent GDP growth defied expectations, it is still at its worst in more than 40 years. The current political developments and the lack of reform-friendly voices in the leadership can further bog down spirits in China. On the other hand, India has emerged as an attractive option for foreign investors, with a growth forecast higher than most developed nations, and the IMF’s positive comments on its performance.

More confrontation with the US?

As a result of the excessive selling, China’s currency lost the most value among Asian currencies which remained subdued against the US dollar, which continues to get stronger. Xi Jinping’s tenure has also seen the US imposing restrictions on its talent supporting Chinese chip firms, which has hit the tech sector, and now the situation doesn’t seem to be changing soon.