Companies that decide to stay and increase their presence in China, however, could be forced to operate as ring-fenced businesses. This would likely complicate financial reporting and increase their regulatory burdens, particularly in the face of rising trade protectionism and regional balkanization.
Ultimately, however, investors and corporations committed to investing in China must be innovative in how they do business in—and with—China. They would need to reevaluate the governance and board-oversight structures of new local entities that may trade only on Chinese stock markets. They would also have to rely on unconventional metrics, since traditional measures such as macro statistics, P/E multiples, internal rate of return, Sharpe ratios, and volatility measures similar to the VIX are less reliable in such a fast-moving geopolitical, economic, and financial environment.
Whatever choice they make, Western investors in China face a completely different economic terrain than the one in which they operated for more than a decade. This shift reflects domestic political developments such as Xi’s iron grip on power. But it also attests to a new geopolitical order in which China and the U.S. compete for economic, technological, and military superiority. In a rapidly deglobalizing world, investors must consider their next moves carefully.
Dambisa Moyo, an international economist, is the author of four New York Times bestselling books, including Edge of Chaos: Why Democracy Is Failing to Deliver Economic Growth – and How to Fix It (Basic Books, 2018).