Foreigners' "Sell China"... Record High Net Selling of 16 Trillion Won in August

Chinese Authorities Avoid Large-Scale Stimulus
Real Estate Crisis from Biguiyuan Also Spreads

As concerns over a China economic crisis triggered by the real estate sector grow, foreign investors have sold the largest amount of Chinese stocks in nine years since the stock market opened. If the instability in the Chinese economy?facing sluggish consumption, export slowdown, and real estate stagnation?does not subside, the wave of foreigners 'selling China' (offloading Chinese stocks) is expected to accelerate further.

According to major foreign media on the 1st, foreign investors net sold stocks worth 90 billion yuan (approximately 16.4 trillion won) in the Shanghai and Shenzhen stock markets during August this year. This is the largest monthly net foreign sell-off since China launched the 'Shanghai-Hong Kong Stock Connect' in 2014, opening its stock market to foreign investors.

As the Chinese government’s passive economic response, ongoing US-China tensions, and the early August default of private real estate developer Country Garden (Biguoyuan) heightened concerns about the Chinese economy, foreign investors are reportedly fleeing the Chinese stock market.

Following the outflow of foreign capital, the Shanghai Composite Index fell 5.2% over the month, while the Shenzhen Composite Index plunged 6.8%. Although Chinese financial authorities introduced various measures to boost the stock market, such as reducing stock transaction taxes, these efforts have been insufficient to restore investor confidence. The chief Asia-Pacific economist at French investment bank Natixis said, "The word 'stimulus' has been overused, and now no one expects a 'big bang' (large-scale stimulus) from a fiscal perspective anymore." He evaluated that although the People's Bank of China, the central bank, cut the benchmark lending rate (Loan Prime Rate, LPR) last month and authorities eased mortgage loan conditions as part of stimulus measures, "these were very minor policies."

The Chinese Communist Party expressed its intention to stimulate the economy at the end of last month but has yet to present a strong stimulus card sufficient to ease market concerns. This is analyzed as a measure considering President Xi Jinping’s policy stance avoiding debt- and consumption-driven growth, as well as the side effects of large-scale stimulus such as depreciation of the yuan.

However, while the Chinese government hesitates to implement strong stimulus measures, the economy continues to deteriorate. The official manufacturing Purchasing Managers’ Index (PMI) released the day before showed 49.7 for August, marking five consecutive months below 50. A PMI below 50 indicates a contraction phase in the economy.

[Image source=Yonhap News]

The default risk of Country Garden is also becoming increasingly imminent. The principal and interest on bonds that the company must cover amount to 15.72 billion yuan (approximately 2.85 trillion won), with maturities coming due one after another until early next year. Global credit rating agency Moody’s downgraded Country Garden’s credit rating from 'Caa1' to 'Ca' on the 31st of last month (local time). With two rating adjustments this month alone, the downgraded Ca rating corresponds to a level of 'imminent default with little chance of recovery.'

If China does not introduce strong stimulus measures including real estate policies, the wave of foreign stock sell-offs is expected to continue. Global investment banks have already lowered their economic growth forecasts for China this year to the 4% range. The market widely believes that the Chinese government’s target of '5% growth' is out of reach.

Stephen Ines, managing partner at SPI Asset Management, said, "GDP is directly affected by the real estate market, and (due to the recent crisis) GDP could fall by more than 1 percentage point," adding, "Investors are quite concerned about whether policymakers can achieve the 5% GDP growth target."

This content was produced with the assistance of AI translation services.