China’s financial climate has been tricky due to various factors, making it a miserable year for those who are bullish on the country. The CSI 300 index of Chinese stocks has plummeted by 13% so far in 2023, amid corporate defaults and a lacklustre economic growth outlook. This has resulted in enormous capital outflows, with both foreign and domestic investors turning away from China. According to the Institute of International Finance, there have been cross-border outflows from the country’s stocks and bonds for five consecutive quarters, the longest streak on record. In fact, foreign direct investment in China turned negative for the first time in a quarter of a century. There are concerns that up to $500bn-worth might be disguised in China’s balance-of-payments data.
Many have been finding ways to dodge China’s capital controls. Mainland residents have turned to buying tradable insurance policies in Hong Kong, while some business owners are misinvoicing trade shipments to get money out of the country. However, the global landscape is no longer as inviting to Chinese investors as it was in the past. American state legislatures have passed bills blocking foreign citizens residing overseas from buying land and property, and Chinese buyers spent much less on American property than they did in the past. Additionally, European countries have started tightening, and even abolishing, their golden visa schemes.
It is in this context that Singapore has emerged as an important destination for Chinese investors, thanks to its proximity, low taxes, and large Mandarin-speaking population. The city-state has seen a significant rise in direct investment from Hong Kong and mainland China, and the number of family offices has also increased. Other neutral locations like Dubai and Japan have also seen surges in demand for properties from Chinese investors.
However, this surge in Chinese capital can also cause problems. In Singapore, it has put pressure on the housing market, leading the government to impose a 60% tax on all property purchases by foreigners. Additionally, the city’s financial secrecy may invite the wrong kinds of activity, as seen in police raids and arrests. Other countries in the region, such as Cambodia and Thailand, are wary of hosting elite Chinese citizens who may bring politics with them.
Although outflows from China are not yet on the vast scale of those seen during the panic of 2015-16, they might prove more enduring. Without a sudden, unexpected recovery in the fortunes of the Chinese economy, the stream of capital looking for an exit is unlikely to slow. Investors and companies will continue to seek a wide variety of foreign assets, prompting joy and headaches wherever they land.
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