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How to Invest in China as Riots and Instability Mount

How to Invest in China as Riots and Instability Mount

When China carried out its ill-fated zero covid policy, it imposed a lockdown on people. Not everyone
with remote access could work. Those unable to work lost two months of salary.

The government’s expectation for people to continue servicing their mortgage debt pushed them to the
limit. With homebuilders halting construction amid a property management bankruptcy, people co-
ordinated the refusal to pay their mortgage.

The Chinese government vowed timely home deliveries. Reuters reported that regulators would help
local governments deliver on property completions on time. The government needs to manage the real
estate crisis that it created. China introduced the “three red lines” relating to the ratio of debt to cash,
equity, and assets in August 2020. This led to spectacular bankruptcies, with Evergrande Group the
biggest.

Recently, technology stocks in China rebounded nicely. For example, Alibaba (BABA) rallied back after Li
Keqiang, a Chinese vice premier, said the government would relax regulations. Bilibili (BILI), Netease
(NTES), Baidu (BIDU), and Tencent (TCEHY) all bounced back.

Investors holding any of those firms can never ascertain the macroeconomic headwinds from the real
estate and bank crisis. For now, markets are ignoring those risks. BABA stock pulled back from its 200-
day simple moving average of $120.

Investors should watch for the risks of riots mounting before investing in China.