The Big Risk Causing Investors to Shun China
HONG KONG—Investing in China has never been this perilous. When global investors flocked to the country during its economic boom in the past decade, geopolitical risks were at the back of their minds. Such risks are now a top consideration for buyers of Chinese stocks, bonds and stakes in private companies—and are turning many people off investing in China.
Beijing’s relationship with Washington has been deteriorating, and the impact on China’s economy and financial markets has come into clear view this year. This past summer, the U.S. restricted Americans from investing in Chinese companies in certain high-tech industries.
The U.S. has also imposed export restrictions on advanced semiconductor chips that can be used to develop artificial intelligence and related manufacturing equipment, to limit their use by China’s military. Chinese internet giant Alibaba in November shelved a plan to carve out its large cloud-computing division because Washington’s chip curbs could hamper the unit’s business activities.
Alibaba lost about $20 billion in market value in a day, demonstrating how U.S.-China tensions can cause unexpected losses for investors. International venture-capital and private-equity investors also have to tread extra carefully when assessing Chinese companies. “For every deal we now look at geopolitical risk, regulatory risk even before we start properly evaluating the attractiveness of the business and the business model," Alvin Lam, a Hong Kong-based operating partner at European private-equity firm CVC Capital Partners, said at the AVCJ Private Equity & Venture Forum in November.
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