Why It’s So Hard for China to Shake the ‘Uninvestable’ Tag

Two years after foreign funds started calling China “uninvestable,” it looked early this year like President Xi Jinping had found a formula to lure them back. A very public pivot away from Covid Zero in late 2022 was accompanied by a string of market-friendly reversals for beleaguered sectors like property and Big Tech, which had been targets of earlier government crackdowns. Officials paired bold steps to shore up economic growth with a decisive shift in tone in favor of private enterprise. Yet market confidence remained shaky as Xi signaled another shift in priorities, emphasizing national security as tensions with the US ratchet up. The world’s No. 2 economy has always been an opaque place for outsiders, but its huge size and rapid development in recent decades meant foreign investors were willing to accept a lot of uncertainty. For a growing number, though, the landscape has changed to such an extent that the risks can no longer be justified.

The context was months of rat-a-tat regulation and state intervention in high-profile initial public offerings, namely Ant Group and Didi Global Inc. in 2021. China’s shock decision to turn high-growth tutoring companies into nonprofits triggered a collapse in their shares. In mid-2021, Goldman Sachs Group Inc. said the word “uninvestable” was starting to feature in a number of client conversations about the country’s stocks. When JPMorgan Chase & Co. analysts last year used it to describe Chinese internet companies and advised against buying certain stocks, their report helped erase about $200 billion from US and Asian markets. The recommendations were reversed two months later, but jitters remained. Xi’s consolidation of power in October 2022 — when he secured a norm-busting third term as Communist Party chief, surrounded entirely by close allies — scared off some international fund managers who feared his concentration of power. Many have yet to come back.