- China's capital exodus is among the worst seen by emerging markets, said Robin Brooks, chief economist at IIF.
- That's as global investors have grown wary of autocratic regimes, he tweeted on Sunday.
China's capital exodus is among the worst seen by emerging markets, as global investors turn cautious on autocracies, according to Robin Brooks, chief economist at the Institute of International Finance.
In a series of tweets, he also said Russia's invasion of Ukraine last year made investors question authoritarian regimes.
"The change in global capital flows is seismic. For the past decade, China attracted the bulk of capital flows to EM, often at the expense of other BRICS," he wrote on X, formerly known as Twitter. "But China has now seen consistent and large outflows for the past 18 months, as investors grow wary of autocracies."
—Robin Brooks (@RobinBrooksIIF) August 27, 2023
Since early 2022, a net $148 billion of Chinese bonds were sold by international institutional investors before June of this year, while the country's equities have been pulled down by sharp withdrawals.
Despite Chinese efforts to calm global investors, its stock market recently underwent the longest stretch of outflows since 2016, hemorrhaging $11 billion in a period of 13 days. Added to that, the CSI 300 Index of Chinese shares suffered a nine-month low last week.
Meanwhile, a gauge of foreign direct investment dropped 87% from a year ago, landing at a record low of $4.9 billion, Chinese State Administration of Foreign Exchange data shows.
The outflows have continued despite Beijing's steady trickle of policies meant to revive China's slowing economic growth.
Brooks added that the capital flight out of China isn't due to higher yields for US Treasurys pulling money away, because other emerging markets haven't seen the scale that China has.
"This is a fundamental change in how people see China and they are cutting back," he tweeted, later adding, "this sentiment change on China is genuine and profound. China's policies are doing little to discourage this shift in thinking."
In fact, Indian and Korean equity funds rose as redemptions on Chinese funds hit an 18-week high, according to June data from EPFR Global.
And last week alone, investors withdrew $527.2 million from Chinese-linked ETFs.
"That says China outflows are NOT about Fed hikes, which hit all EM equally, but instead Russia's invasion of Ukraine that's made investors question autocracies. Global markets look at China in a new light," Brooks said in a separate X post.
His tweets echo a recent op-ed from Adam Posen, president of the Peterson Institute for International Economics.
Writing in Foreign Affairs earlier this month, he said China's economic malaise is following a pattern of development that's typical of authoritarian regimes.