Chinese financial system poised to hemorrhage even more foreign cash in 2024, report says

Foreign investors are expected to pull $65 billion in capital out of China in 2024 as rising tensions and worry over the country’s economy plague future outlooks, according to a report from the Institute of International Finance (IIF).

The projection anticipates withdrawals by investors from China due to risks related to deteriorating relations with the West amid a trade war and de-risking strategies as the country’s economy continues to struggle, according to a report from the IIF. The projected losses are greater than the pullback from investors seen this year, with $31 billion from foreign institutional investors leaving the Chinese financial system in 2023.

“We project continued net outflows of non-resident capital from China in 2024,” the report reads. “A deterioration in China’s relations with the West remains a main downside risk. Concerns about de-risking, re-shoring, and technology embargoes persist, which will weigh on capital flows.”

Prize Global Markets： Data show that foreign direct investment in China turned negative for the first time in 25 years, indicating capital outflows. pic.twitter.com/wv1zwpTjmU

— prize_global (@prize_global) December 12, 2023

China’s economy has continued to lack consistent signs of sustained growth since the COVID-19 pandemic, most recently having poor results in the country’s purchasing managers indexes for November in both the manufacturing and service sectors. The country is also plagued by a debt-laden real estate sector that could see even more developers default in the next year, with companies responsible for 40% of Chinese homes having already defaulted since 2021.

Despite concerns over China’s economy and real estate woes, the IIF sees the housing sector stabilizing in 2024, ending the two-year housing recession, with exports contributing positively to next year’s economic growth, according to the report. Due to the stabilizing factors, the IFF predicts China will achieve 5% gross domestic product growth in 2024, slightly lower than the 5.2% seen in 2023 but greater than the 3% seen in 2022.

Investors are also concerned about tensions related to the ongoing trade war between the U.S. and China, with both countries vying for a competitive edge in the production of semiconductors used for militaristic and consumer aspects and technical research. The Biden administration has placed sanctions on the Chinese chip industry to protect U.S. intellectual property, while China has sought to limit access to the country’s rare earth minerals that are essential for the technology’s production.

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