64 The Economist May 28th 2022
Finance & economics
China’sfinancialmarkets
Empty promises
J
ing’an century,a housing development
with ponds and lush greenery in north
Shanghai, should have been bustling as
workers put the finishing touches on flats.
Instead the area is silent. A twomonth
lockdown of the city of 25m people has
forced Yanlord, the developer, to halt con
struction on the site. Homebuyers have
been on edge for months as some of the
country’s largest developers default on
bonds and struggle to deliver homes.
Now Yanlord, until recently deemed in
decent shape, is telling customers they will
not receive their properties on time. At
least 20 housing developments across the
city have announced similar delays. Many
other projects have been forced to stop
selling units. The lockdown has been so se
vere that roadblocks and police check
points have mushroomed. Workers, mate
rials and sales agents have been unable to
reach construction sites. Meanwhile, Yan
lord’s presales of homes have slumped to
less than 20% of the level a year ago.
China’s property crisis is not new. But
growing fears among foreign investors of a
grand policy disaster are. The combination
of a nosediving housing market and Xi
Jinping’s uncompromising zerocovid
policy is just one recent conundrum that
has led foreign fund managers to question
whether China is losing its pragmatic ap
proach to managing the economy.
Mr Xi’s insistence on using prolonged
lockdowns to rid China of the Omicron var
iant and his backing for Russia’s war in Uk
raine strike many investors as ideological.
Add in the timing of his crackdown on tech
groups such as Alibaba, an ecommerce
company, and on the leverage of property
giants such as Evergrande, and it is not
hard to see why some of the world’s largest
investment groups are questioning the
quality of leadership in Beijing. Many attri
bute this and other campaignsto prepara
tions for this autumn’s Communist Party
congress, at which Mr Xi is expected to be
granted another five years in office. The
events of 2022 could shape how global in
vestors view China for years to come.
In little over a year Mr Xi’s policies have
had a profound—and painful—impact on
global markets. They have knocked $2trn
from Chinese shares listed in Hong Kong
and New York. Chinese initial public offer
ings in these two cities have nearly ground
to a halt this year. China’s property firms
have sold just $280m in highyield dollar
bonds so far in 2022, down from $15.6bn
during the same period last year. Within
China, the value of yuandenominated fi
nancial assets held by foreigners fell by
more than 1trn yuan ($150bn) in the first
quarter of 2022, the biggest drop ever. The
Institute of International Finance (iif), a
bankers’ group in Washington, forecasts
that $300bn in capital will flow out of the
country this year, up from $129bn in 2021.
Onshore markets were one of the linch
pins of China’s relations with the outside
world. The belief that they would continue
to open up helped to maintain links with
Western financiers hoping to strike it rich.
Even as relations between America and
China soured during the Trump years, a
craving for onshore securities took hold of
many of the world’s biggest financial
groups. As a trade war dampened global
sentiment, regulators in Beijing began ex
S HANGHAI
Foreign investors were ecstatic as Chinese markets opened up.
Now they are fleeing
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— Buttonwood is away