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Beijing Deploys Propaganda to Cover up China’s Rapid Economic Decline

Investors withdraw billions despite Communist Party claims of ‘great achievements’
Leo Timm
Leo Timm covers China-related news, culture, and history. Follow him on Twitter at @kunlunpeaks
Published: December 14, 2023
(Image: Getty Images/ Yiu Yu Hoi)

Worsening economic figures, rising political instability, and intensifying crackdowns by the Chinese Communist Party (CCP) are scaring foreign investment out of mainland China, with Wall Street executives becoming more vocal about their souring assessments. 

This year, more than $31 billion has been withdrawn from Chinese stocks and bonds by foreign holders, or the most since Beijing joined the World Trade Organization in 2001. 

Meanwhile, the CCP has issued vague directives to improve the economy and touted its “great achievements” in securing China’s future prospects. However, a lack of concrete measures to bring about any real change in the situation, coupled with ever more exhortations from Beijing to boost the Party’s “governance capacity” and ensure “state security,” have further dampened confidence. 

Additionally, the failure of the Xi Jinping leadership to even confirm whether the CCP will hold its landmark Third Plenum to discuss economic matters does not bode well for China’s image. 

Capital flight

As reported by the Wall Street Journal on Dec. 7, “some of Wall Street’s best-known financiers” had revealed in closed-door meetings with Congressman Mike Gallagher in mid-September that they were “ratcheting back their investments” in China due to the country’s real estate sector crisis, economic deterioration, and the emphasis on national security ordered by Communist Party leader Xi Jinping. 

Rep. Gallagher (R-WI) is chairman of the House Select Committee on the CCP. 

Speaking with the Financial Times on Nov. 28, Goldman Sachs CEO David Solomon said at the Global Banking Summit that the Wall Street bank has taken a “more conservative approach” in China, and is moving away from a “growth at all costs” strategy “simply because there’s more uncertainty” now as opposed to several years ago. 

In the week of Dec. 4, Moody’s Investors Service downgraded its outlook on the credit ratings of mainland China, Hong Kong and Macau, some Chinese state-owned firms and banks, 22 local government financing vehicles, 18 mainland companies including Alibaba and Tencent, and 10 insurance companies, from stable to negative. 

Additionally, Moody’s put 26 LGFVs and four SOEs on downgrade watch. Following the change in Moody’s outlook the Shanghai Composite Index traded below 3,000 points — considered a psychologically important threshold — for several days.

Hedge funds, including Ray Dalio’s Bridgewater Associates, have “significantly reduced their holdings of Chinese securities,” the Wall Street Journal reports. Private equity firms like Carlyle have “slashed fundraising targets for their Asia funds or stopped raising China-oriented funds altogether.” 

Also, private equity funds targeting China have raised just $4.35 billion so far in 2023, compared to the average of nearly $100 billion each year over the past decade, according to data firm Preqin. Meanwhile, mutual fund managers such as Vanguard and Van Eck Associates have “either pulled out or aborted their China plans.” 

Josh Wolfe, managing partner of venture capital firm Lux Capital, told the Journal that the company decided not to invest in China five years ago because the PRC authorities’ growing use of technology for social surveillance “seemed like an omen of intensified state control.” Wolfe believes that capital will continue to leave China, and that “this is a secular shift that can last a long time.”

On Dec. 6, the Singapore-based Vesternews reported that 699 wealthy mainland Chinese had set up family offices in Singapore as of August 2023, citing data from Singapore database company Amicus. 

In addition, the report noted that according to London-based investment migration consultancy Henley & Partners, 10,000 millionaires had left China and moved to other countries in 2022. Each of these millionaires was estimated to have taken an average of over $4.4 million when exiting China, which meant a total outflow of over $40 billion. 

Propaganda and reality

On Dec. 12, Chinese state mouthpiece Xinhua published an article touting the communist authorities’ economic results titled, “Reading China’s Numbers Over the Decade | Ten Sets of Data to Witness the Great Achievements of the New Era.”

Earlier in December, state media reported that the Politburo had held a meeting to study and analyze economic work in 2024. Chaired by General Secretary Xi Jinping, the meeting concluded that 2023 had been a year of “economic recovery” from the three years of ruinous “zero-COVID” lockdowns. 

The Chinese economy, per the Politburo, had withstood external pressures, overcame internal difficulties, and “has rebounded and is on the rise” thanks to the leadership of the Communist Party and its leader. 

Economic work in 2024 must be guided by “Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era” and adhere to the principle of seeking progress while maintaining stability and promoting stability through progress, the meeting stressed. 

Prior to this, a Dec. 1 article published in CCP ideological journal Qiushi hailed Xi Jinping’s speech at the 2023 Central Financial Work Conference in October as a “major innovation and theoretical elevation,” and emphasized the need for business to “adhere” to the Party’s Marxist policies. 

SinoInsider, a risk consultancy that specializes in elite Chinese politics, noted in a Dec. 11 newsletter that while the Xi leadership’s stress on stability and ideological orthodoxy would win it no friends among anxious foreign investors and wealthy Chinese at home, “Xi almost certainly believes that his only solution for resolving the existential domestic and external problems plaguing the CCP regime is to strengthen his and the Party’s authoritarian control” over the financial sector and society more generally. 

But “by accelerating his ‘rectification’ of the financial sector, Xi is also accelerating the deterioration of the Chinese economy,” SinoInsider wrote.