Is China ‘Uninvestable’ and What Does That Even Mean?

For more than a year, President Xi Jinping inveighed against the “disorderly expansion of capital” as he launched punishing regulatory and antitrust campaigns against the private sector, from Big Tech to after-school tutoring. That’s made life more difficult for investors, who since the global financial crisis had benefited greatly from an economic boom in the world’s second-largest economy. Those who rode the bull market are now saddled with losses as erratic government policies -- and a murky information flow -- turned China’s financial markets into the most turbulent globally. Some investors gave up and called parts of China “uninvestable.” The question now is whether this year’s apparent shift in rhetoric will convince them that it’s safe to come back.

In mid-2021, Goldman Sachs Group Inc. said the word “uninvestable” was starting to feature in a number of client conversations about the country’s stocks. The context was months of rat-a-tat government regulation and state intervention in high profile initial public offerings, namely Ant Group and Didi Global Inc. In July that year, China’s shock decision to turn high-growth tutoring companies into nonprofits triggered a collapse in their shares almost overnight. A month later Paul Marshall, co-founder of hedge fund Marshall Wace, said that U.S.-listed Chinese companies weren’t worth the risk anymore. When JPMorgan Chase & Co. analysts this year described Chinese internet companies as “uninvestable” and downgraded a number of stocks, their report helped erase about $200 billion from U.S. and Asian markets and prompted one Chinese technology company to downgrade the bank’s underwriting role on an upcoming IPO. (The analysts reversed the downgrades two months later.)