CHINA’S RISING INVESTOR FEARS

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Marco Vicenzino speaks to Euromoney about how political and economic concerns are mounting for China investors

Vicenzino is a Euromoney Country Risk Expert

The Evergrande crisis is a prime example of the broader systemic challenges that the CCP faces.”

 – Marco Vicenzino

INVESTOR FEARS: RECENT BUSINESS CRACKDOWN BY CHINESE COMMUNIST PARTY (CCP) 

“Foreign investors have clearly been spooked by the crackdown of the Chinese Communist Party (CCP) on various sectors of the economy, particularly in the last six months, says one of Euromoney’s China experts, Marco Vicenzino, director of Global Strategy Project.

This has created a certain degree of fear and uncertainty, he says. “It leaves many investors in limbo with a kind of guessing game as to which sector is next.”

This, he believes, will see many investors reduce their portfolio in China – although not all, as the Chinese market is simply too big to avoid.

“For these investors, it’s essential to understand China’s political climate, where it’s heading and avoiding certain sectors, particularly those with greater political exposure,” says Vicenzino.

“Fundamentally, investing in China involves an enormous political dimension and risk. Whereas directors in western companies are primarily accountable to shareholders, those of Chinese companies – whether operating at home or abroad – are ultimately accountable to the CCP, and its internal dynamics.”

Consequently, Vicenzino says, Chinese corporate entities will struggle to fulfil their true potential in the longer term.

CHINA vs THE WEST: GEOPOLITICAL COMPETITION 

Vicenzino points out that the geopolitical competition and the inherent risks between China and the West has been going on for decades.

“The main difference is that the leaders of the CCP have been aware of this contest, prepared for it and operating on this premise for decades,” he says.

“The CCP has been considerably ahead of the curve in this ongoing, and exponentially growing, struggle for influence regionally and globally. For many years, the CCP has been engaged in the strategic long game against the West – making the generational investments of time, efforts and resources.”

He says the AUKUS initiative (new security alliance formed by U.S., U.K. and Australia) was long overdue and that other similar, and much-needed, arrangements must increasingly materialize over time and form part of a broader strategy by western and democratic countries for dealing and managing relations with the CCP, and whenever necessary confronting it head on.

“Western leaders, in both public and private sectors, mostly fell asleep at the wheel for far too long. They eventually experienced a rude awakening, largely through the Covid crisis, to the rawness and realities of the CCP.

“For decades, western politicians naively believed that China would eventually democratize through greater economic prosperity and opportunity. On the other hand, most western corporate leaders focused purely on profits and remained practically aloof to politics, some intentionally and others naively. The reality of the geopolitical competition is now on full display.”

CHINA ECONOMIC DOWNGRADES COMING 

Vicenzino says that regardless of current challenges, China will inevitably increase its position as a leading global economic power over time. However, its real potential will continuously be hindered – at home and abroad – by a lack of transparency, and other accompanying and related factors, particularly emanating from the political realm.

“The Evergrande crisis is a prime example of the broader systemic challenges that the CCP faces. How it ultimately deals with it, and other similar and inevitable crises, will have serious implications for decades to come.”