January 26, 2024 - 6:30pm

In the latest instalment of this season’s China-gloom series, it emerged this week that the country’s investors are using Bitcoin to shelter from the storm currently roiling their country’s property and stock markets. What makes this development so remarkable is that it involves some artful dodging, given that crypto mining and trading is illegal in the country.

But at the moment, it’s comparatively lucrative. Property prices are down 7% in real terms since their 2021 peak, while the stock market is in even worse shape. Unlike its US rival, prices on the Shanghai market never recovered from the global financial crisis, and have now shed half their value since 2007. The trend in both markets continues remorselessly downwards. Although Bitcoin has its own woes and is well off its 2021 peak, in recent months at least it has held up relatively well.

Yet the enduring slump in Chinese assets isn’t for want of efforts by the Chinese authorities to juice the economy, using repeated waves of stimulus spending. As a share of GDP, government debt has tripled since the financial crisis, largely thanks to splurging on huge infrastructure projects. When private debt is added to the mix, China now owes its creditors nearly three times the value of its annual output.

Given that most of these creditors are in fact Chinese savers, this level of debt doesn’t set off alarm bells the way it would in other countries. But the fact that China is racking up its bills without getting much additional growth to show for it is starting to trouble investors. There’s a widespread recognition that the country’s economy needs structural change so as to move it away from investment-led export growth and towards domestic consumption, which would require some loosening of civil society.

But action remains slow to come. The Chinese Premier’s recent speech at the World Economic Forum in Davos, which can be treated as an indication of the government’s position, revealed no sense of urgency to change course. Despite ordering local fund managers not to sell shares, Beijing has failed to stem the decline of the stock market. Whereas America’s S&P 500 index has risen by 20% over the last year, the Shanghai market is down by a tenth.

Many markets have underperformed relative to the US in recent years, yet this doesn’t minimise China’s woes. Part of its difficulty is that its assets have become unattractive to foreign investors at the very moment other regional markets have begun to beckon. In part this reflects geopolitical shifts, most notably the pressure of Western governments for their firms to decouple from China, along with the trend to de-risk among American and European CEOs anxious about the direction of Chinese policy. 

More significantly, though, some of China’s rivals in Asia have suddenly become a lot more appealing to Western investors. Japan appears to have finally shaken off its deflation problem, which could mean there’s considerable upside in future Japanese corporate earnings. And India has become an attractive market for firms looking either to “friend-shore” or to connect with what will be the world’s fastest-growing middle class.

Now, Chinese investors are joining their Western peers in heading for the exits. It’s hardly a vote of confidence in their own country’s leaders. Warren Buffett famously said investors could never go wrong betting on America. Until Chinese investors show a similar faith in their country and its leaders, the rest of the world will do well to follow their lead.

John Rapley is an author and academic who divides his time between London, Johannesburg and Ottawa. His books include Why Empires Fall: Rome, America and the Future of the West (with Peter Heather, Penguin, 2023) and Twilight of the Money Gods: Economics as a religion (Simon & Schuster, 2017).