The Asian giant has suffered an unprecedented capital outflow since the beginning of the year, which experts attribute to a worrying shift in Xi Jinping's economic approach.Foreign investment was one of the pillars of the "economic miracle" in China, a country that in four decades lifted 850 million people out of poverty.After Mao Zedong's death in 1976, the more orthodox communism gave way to a pragmatic approach to economic development, and three years later the country opened its doors to foreign investment.In the following decades, capital inflows grew exponentially, as Chinese GDP expanded at an average rate of more than 9% per year.But now that long-standing trend has begun to reverse.Foreign investment in China has plummeted since the beginning of this year, especially since the Russian invasion of Ukraine.Between January and March alone, foreign investors withdrew some US$150 billion in financial assets in yuan, mainly bonds."Although China registered inflows (of capital) in January, outflows in February and March were so large as to make the first quarter the worst on record. The flight of actions continued in April," indicates the May report of the Institute of International Finance (IIF).This Washington-based entity forecasts an outflow of assets from China of US$300 billion this year, more than double the US$129 billion in 2021.We analyze what are the 4 main causes of this trend, if it is here to stay, what consequences it will have and what the Chinese authorities are doing to combat it."The 'covid zero' policies are leading China to a contraction similar to that of the first wave of the pandemic," Spanish economist, academic and writer Juan Ramón Rallo told the BBC.More than two years after the start of the pandemic, most countries have lifted restrictions due to covid, but this is not the case in China.Beijing, which previously had always prioritized economic growth above everything else, this time put it aside to prevent a possible health emergency, despite the fact that the majority of its population is vaccinated.The government imposed strict confinements in Shanghai - which accounts for 5% of the national GDP - and in other cities it tightened anticovid measures, reducing business activity.Thus, unemployment in the cities exceeded 6%, its economy contracted by 0.68% in April and few believe that China will achieve the growth target for this year of 5.5%, a figure that is already discreet compared to those of previous years."Many companies still see China as an important market, but today it is difficult to maintain that optimism while the rest of the world opens up and China remains closed," Nick Marro, principal analyst in Hong Kong for the Economist Intelligence Unit (EIU), explains to BBC Mundo. ).Marro believes that the "zero covid" strategy does not invite capitalists to bet on China "since the rules can change suddenly, without prior notice, which makes planning and decisions about future investments even more difficult.""The big question is whether foreign investors see 'Covid Zero' as a temporary problem that they can tolerate. The longer this policy continues, the greater this intolerance will be."Housing construction has been one of the growth engines of the Chinese economy in recent decades.However, it has been in crisis since last year due to the heavy indebtedness of the local giants in the sector, with Evergrande in the lead.Although China's real estate crisis comes from before, the fears of foreign investors about its consequences on the economic health of the country in combination with the effects of "covid zero" and other factors are more recent."In the last 10 years, China has grown on the basis of cheap credit and the housing bubble," recalls Professor Rallo.After the bursting of this bubble, he explains, the country is immersed in a change in the production model that he describes as "complicated"."The digestion of a real estate bubble of such magnitude is a slow and painful process, and more so if it is not allowed to adjust quickly, as the Chinese Communist Party seems to be doing."Aware of this problem, the Chinese authorities have taken some measures to revitalize the real estate market, including several cuts in mortgage interest rates by decree of the country's central bank.This places China as one of the few countries that goes against the tide: while the European Central Bank and the Federal Reserve announce rate hikes to combat inflation, Beijing resorts to stimulus to alleviate its real estate crisis and revitalize its economy, a bet that many consider risky in full escalation of prices at a global level.The invasion of Ukraine has cost Russia economic isolation from the West with sanctions the magnitude of which no one would have imagined for a country of such importance.The war has prompted many investors to question what would happen to their assets in China if Xi Jinping launches a military operation in Taiwan, puts down a popular uprising in Hong Kong by force, or decides to resolve by arms the territorial disputes he has with 5 from your neighbors.And China's position in the Ukrainian conflict, closer to Russia, does not help either."Markets are concerned about China's ties to Russia - that is scaring investors and risk aversion has been on display since the beginning of the invasion," Stephen Innes, managing partner at investment service SPI Asset Management, said in a statement. recent interview with Bloomberg."Everyone started selling Chinese bonds, so we're glad we didn't buy any," he told the economic portal.Professor Rallo, for his part, highlights the trend towards the regionalization of global trade with two main zones of influence: Europe-United States on the one hand, and China-Russia on the other.Thus, for Western companies "having part of their value chain in the other bloc can become a disadvantage", so some of them would choose to give up those markets.Analyst Nick Marro also highlights "the deepening schism between China and the West on issues such as economic and strategic competition, as well as democratic values ​​and human rights."A good example of the latter is Norway's Norges Bank Investment Management, the world's largest sovereign wealth fund managing assets of 1.3 trillion dollars, which in March excluded the shares of the Chinese sportswear company Li Ning for the "unacceptable risk" that it "contributes to serious human rights violations".Both the Chinese "economic miracle" and the avalanche of capital flows that largely made it possible came hand in hand with reforms aimed at free markets and the development of private companies.However, notes Nick Marro, "much of the reform agenda that could benefit both foreign and local private companies has stalled."The recent trend towards protectionism and intervention is seen in several sectors, but especially in technology, "where national security concerns trump everything else," he says.The clearest example is the offensive launched in 2021 against the big Chinese technology companies, which critics attribute to the will of the State to control the sector, and which stripped world-renowned companies, including Alibaba, of much of their value.Billionaire Jack Ma's corporation was one of the hardest hit by Beijing's regulatory campaign, which in April last year imposed the largest antitrust fine in the country's history, worth some $2.8 billion.According to the analyst, the Chinese government is giving more and more power to state entities, which could play against its objective of reviving economic growth.In recent weeks, the Reuters agency and Bloomberg cited sources in the sector when they reported that, aware of the adverse effects of this policy, Beijing plans to correct its heavy-handed policy with technology companies, although the government has not officially confirmed this.Chinese stock indices have also not been giving investors good returns in recent months.The Shanghai CSI300 bottomed out at the end of April and has since rebounded slightly, although it is still far from its levels at the beginning of the year.The local currency, the yuan, was trading at its lowest levels in two years against the dollar in May.On the other side of the coin, it can be said that the downward curve in the Chinese indices is not much steeper than that of their equivalents in the US and Europe, which have also depreciated since the beginning of the year after reaching highs in 2021.And China's trade surplus exceeded $200 billion in the first quarter.Although it is partly due to the drop in imports, it is an estimable cushion that helps it better weather foreign investment withdrawals.In this context, the IIF describes in its report, the outflows of capital flows from China are not endangering the solvency of the country, which does not lack foreign currency to meet its external obligations.This institution also considers that the wave of disinvestment in the Asian giant has limits."Although we see high-profile companies announcing plans to leave the market, we should not misunderstand this as an exodus. Many of these companies have been in China for decades and it will not be an easy or quick decision for them to leave their market," he says.In a recent editorial, The Economist points to the upcoming National Congress of the Communist Party of China (CPC), scheduled for October, as the turning point that could give a new focus to the Chinese economy and present a different outlook for foreign investors."The optimistic perspective is that this dark period of ideology, political mistakes and slow growth is part of the preparation for the party congress. When this passes, the pragmatists will have more control of politics, the 'covid zero' will end and it will return support for the economy and technology".Now you can receive notifications from BBC World.Download the new version of our app and activate it so you don't miss out on our best content.Receive the news by e-mailMember of Grupo de Diarios AméricaSubscribe to our newsletters and update your preferences Send LAST MINUTE AT 5 AM THIS IS THE WORLD YOUR NEWSLETTER +503 SPORTS SHOWS ELLA MAGAZINE JOB EXCHANGE HOROSCOPE THE ECONOMIST EPAPER THE ECONOMIST THE GRAPHIC I accept the terms and conditions.Or you can register your emails using: Response message for newslettersResponse message for newsletters