December 5, 2022

Marche Financier

Idées commerciales actuelles

China is no longer just any emerging market

A worker disinfects the Sanlitun shopping complex in Beijing in June as stores in the area were closed for three days after a Covid outbreak. There’s greater caution on China this year, as stringent Covid controls drag on and as growth takes a backseat. Analysts note longer-term trends of China’s reduced dependency on foreign investment and intellectual property.

Kevin Frayer | Getty Images News | Getty Images

BEIJING — China is no longer just another emerging market play. Now, the country is becoming its own beast — with all the risks and rewards that come with being a world power.

There’s greater caution on China this year, as stringent Covid controls drag on and as growth takes a backseat. Analysts note longer-term trends of China’s reduced dependency on foreign investment and intellectual property.

That’s all on top of Beijing’s crackdown on the internet tech sector and real estate developers in the last two years.

Foreign investors are reacting. The share of Chinese stocks in the benchmark MSCI emerging markets index fell from a peak of 43.2% in October 2020 to 32% in July 2022, Morgan Stanley analysts pointed out.

In the meantime, exchange-traded funds tracking emerging markets — but not China — saw assets under management surge from $247 million at the end of 2020 to $2.85 billion as of July 2022, the report said.

WisdomTree last month became the latest firm to launch an emerging markets ex-China fund, following Goldman Sachs earlier in the year.

This mood has shifted from China being one of the most attractive places to invest in the world … to the fact that the rivalry [with the U.S.] has introduced an uncertainty element and quite a substantial risk element

Ketan Patel

co-founder and CEO of Greater Pacific Capital

“We definitely hear clients [saying], maybe given the current political environment, maybe dial[ing] down China could be a better strategy,” said Liqian Ren, leader of quantitative investment at WisdomTree.

So far, she said, the number of clients excluding China isn’t “overwhelming,” and by metrics such as per capita GDP the country remains an emerging market.

The category includes Brazil and South Korea and refers to economies with generally faster growth than developed economies such as the U.S. — and more risk.

Rivalry with the U.S.

We've once again downgraded our forecast for China's growth, says IMF

New party office rules

The growing role of the Chinese Communist Party under Xi is now a greater concern for finance — an industry in which China has recently allowed more foreign ownership.

Chinese law has long required internal party committees — for companies with at least three party members. However, enforcement began to pick up only after 2012, according to the Center for Strategic and International Studies.

An internal party committee, or office, gathers together a company’s employees who are members of the Communist Party of China. They may then hold events such as studying “Xi thought.”

New rules from the China Securities Regulatory Commission that took effect in June say securities investment funds in China need to set up an internal party office.

When asked about the new rules, the securities regulator said they are in line with corporate governance principles and Chinese law, and there’s “no need to worry at all” about data security, according to a CNBC translation of the Chinese.

Read more about China from CNBC Pro

It’s unclear what role such party offices play in business operations, said Daniel Celeghin earlier this year, when he was managing partner at consulting firm Indefi.

But before the pandemic, he said, at least one large Western asset manager decided not to set up a subsidiary in China because once they learned establishing a party cell would be required, “that overcame all of the potential commercial gains.”

China’s appeal