• Foreign investors are selling assets in China and may not jump back in next year, an expert said.

• That's because restrictive Chinese economic policy and US's efforts to shift the supply chain away from China won't change.

• "Foreign investors are actually selling assets in China — something we haven't seen before."

Foreign investors have been bailing on China as its economy slows and tensions with the US escalate, and next year may not see a big rebound in capital inflows.

That's according to Mary Lovely, a senior fellow with the Peterson Institute, who told Bloomberg TV on Thursday that although President Xi Jinping has acknowledged the importance of foreign capital, Beijing's policies continue to have a "chilling effect" on investment.

"Our latest finding is that not only has foreign investment into the country fallen, but that foreign investors are actually selling assets into China — something that we haven't seen before," she said.

That comes as offshore investors have been turning bearish on Chinese stocks, with 2023 marking their lowest-ever amount of purchases in mainland shares.

A highly anticipated economic rebound from China's strict zero-COVID policies has failed to materialize while a property crisis and pessimistic consumers also drag on growth.

But domestic and international policies have weighed on investment too, and Lovely sees those trends continuing next year.

In China, the leadership will likely maintain strict regulation of foreign companies while giving the Communist Party a bigger role in the managing the economy, she said. Meanwhile, US policy will also likely to continue prioritizing a shift of supply chains away from China.

"We may in fact see depressed foreign investment into China for a good part of 2024," Lovely said.

Last week, the Chinese Communist Party announced more stringent rules regulating the video-gaming industry, sinking stocks like Tencent and NetEase. The country has also been cracking down on tech giants like Alibaba since 2020.

But as 2023 draws to a close, some signs of life emerged in Chinese markets. On Thursday, foreign investors poured $1.9 billion into onshore Chinese equities, the biggest inflow since July, Bloomberg reported. And last month, global investors bought a net $33 billion of Chinese bonds, the second most on record.

Read the original article on Business Insider