Jeremy Mark, a nonresident senior fellow in the GeoEconomics Center at the Atlantic Council, has warned that the Chinese stock market crash could potentially sever many foreign investor relations permanently. He stressed that stability would need to be restored before investors regain confidence in the Chinese market.
According to an article by Mark published by the Atlantic Council, the prolonged downturn in Chinese stocks has led to significant investment capital losses. This adds further pressure to an economy already struggling with a property crisis, sluggish growth, and deflation. "It may be the last straw for foreign institutional investors who once saw China as an essential destination," Mark stated.
The article revealed that since early 2021, stock prices in Shanghai, Shenzhen, Hong Kong, and New York have collectively plummeted by approximately $7 trillion. Despite Beijing's recent attempts to stabilize the market, investor sentiment remains weak. The market downturn compounds fallout from the real estate crisis, with developers defaulting on bonds and local governments amassing $13 trillion in debt.
Amid these challenges, according to the article, Beijing's recent interventions aim to bolster market stability and address economic issues. These include pledges of fiscal stimulus. However, Mark pointed out that a full recovery requires a robust response to the property crisis and efforts to stimulate household demand. Moreover, he noted that political uncertainties underscored by President Xi Jinping's directives on financial culture and common prosperity cast a shadow over the future trajectory of the market.
While some fund managers might consider returning to China following signs of recovery, according to the article, current trends suggest short-term speculative trading is more likely. This poses risks of volatile market swings while desired investors relocate their capital elsewhere. "China’s markets will be a destination where investors will be able to make fast profits but also risk losing their shirts," said Mark. "All of which must be considered ironic since one of the original purposes of China’s policy of opening its markets to foreigners was to attract stable, long-term institutional investment."
The Atlantic Council website notes that Mark serves as a nonresident senior fellow at the GeoEconomics Center of the Atlantic Council. His focus is on political, economic, and financial matters related to Asia and Africa. He specializes in writing about U.S.-China relations and debt issues in developing countries for the GeoEconomics Center.
