After decades of growth that has seen China become an economic power to reckon with, the country recorded its first instance of negative FDI (Foreign Direct Investment). The FDI figure for the second quarter of 2023 stood at $4.9 billion, which is an 87% decrease YoY and the lowest since 1998.
The Chinese economy has been struggling since the COVID-19 pandemic. The figures coming out of the country are only confirming what many have long considered a brewing crisis for China.
There are local as well as foreign factors that are hurting China at the moment. On the local level, tougher laws for capital control for foreign entities and other similar policies are slowing down growth. Foreign firms need to satisfy their local regulators that they aren’t doing business with people involved in human rights abuses, child labor for example. The lack of transparency in China is not helping. The Chinese leaders are expected to address these issues soon which might result in a relaxation of the laws.
But the problems stemming from China’s relations with foreign countries might be the bigger reason for the slowdown in the Chinese economy. During the onset of the COVID-19 pandemic, countries realized they were overly dependent on China. Countries like the U.S. and Germany have tried to diversify away from China and invested in developing countries to fill that gap. They want to have more choices when it comes to using cheap foreign labor.
How Are the Politicians Trading Chinese Stocks?
When U.S. politicians invest in Chinese stocks, they often have to face criticism. China threatens U.S. hegemony as the sole superpower of the world. Its interests and values do not align with the ones that the United States practices and promotes. Therefore, an investment in the Chinese economy is often seen as a threat to the U.S. When that investment is done by a U.S. politician, it becomes even more controversial.
It comes as no surprise that during the last one year, U.S. politicians have largely avoided Chinese stocks. During this time, politicians have sold between $44,000 to $310,000 worth of stocks issued by Chinese companies.
During the same time, only one U.S. politician, namely Josh Gottheimer who also sits on the Intelligence Committee, has bought $4,000 to $60,000 worth of Chinese stocks. No other politician has dared to buy Chinese stocks, which says a lot about how the U.S. government views China’s development.
People often keep an eye on what the politicians are trading to make their own investment decisions. When it comes to Chinese stocks, the words 'geopolitical tensions’ are often cited as a reason not to invest. With bad news coming out of China, and politicians clearly avoiding Chinese stocks. It becomes quite clear that anyone investing in China is taking a big risk.