A growing list of risks is turning China into a potential quagmire for global investors.
The central question is what could happen in a country willing to go to great lengths to achieve its leader’s goals. Chinese President Xi Jinping’s friendship with Russian leader Vladimir Putin has made investors more distrustful of China, while a strongman narrative is gaining momentum as the Communist Party doggedly pursues a "COVID zero" strategy and unpredictable campaigns to regulate entire industries.
As a result, some international investors are finding an aggressive allocation to China increasingly unpalatable. Outflows from the country’s stocks, bonds and mutual funds accelerated after Russia’s invasion of Ukraine, while Norway’s $1.3 trillion sovereign wealth fund has snubbed a Chinese sportswear giant due to concerns about human-rights abuses. U.S. dollar private-equity funds that invest in China raised just $1.4 billion in the first quarter — the lowest figure since 2018 for the same period.
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