China’s CSI 300 Index, which tracks the performance of the 300 largest firms on the Shanghai and Shenzhen stock exchanges, rose as much as 5.5% on Monday before paring most of its gains to end the day up just 1.17%.

Over the weekend, Chinese authorities halved the tax charged on stock trades, called a “stamp duty,” and lowered the amount of collateral a trader has to deposit in order to borrow money to invest in stocks in a bid to “boost investor confidence,” according to a Google translation of a statement from China’s Ministry of Finance. Beijing also asked some mutual funds to avoid being net sellers of equities, Bloomberg reported, citing unnamed sources.

Despite the moves, foreign investors continue to flee Chinese markets. With Beijing cracking down on foreign consulting firms amid tensions between the U.S. and China and repeatedly requiring investment firms to avoid selling stocks when markets look shaky, investors seem increasingly nervous about the risks of holding capital in China.

In the first half of this year, the number of active China-focused hedge funds fell for the first time in more than a decade. And in the second quarter, direct investment liabilities—a measure of foreign direct investment into China—slumped 87% from a year ago to a record low of $4.9 billion, according to figures released by China’s State Administration of Foreign Exchange on Friday. 

China’s weaker-than-expected post-COVID recovery and lingering economic issues—which include a property crisis, sky-high youth unemployment, nearly $13 trillion in local government debt, and fading industrial firm profits—have also led to a slowdown in foreign investment in the country. 

“The change in global capital flows is seismic,” Robin Brooks, chief economist at the Institute of International Finance, wrote in a Sunday post on X.com. “For the past decade, China attracted the bulk of capital flows to EM [emerging markets], often at the expense of other BRICS. But China has now seen consistent and large outflows for the past 18 months, as investors grow wary of autocracies.”

In a wider sign that China is becoming a less friendly place for investors, Chinese millionaires are leaving the country in droves amid a regulatory crackdown against large private companies. The country will lose a record 13,500 millionaires this year, according to an estimate from migration consulting firm Henley & Partners’ new Private Wealth Migration Report. That follows the loss of around 10,800 millionaires in 2022. 

Mending a broken relationship?

Against this backdrop, on Monday, Commerce Secretary Gina Raimondo was seeking to mend the fractured relationship between the two nations with a visit to Beijing. Raimondo and Chinese Commerce Minister Wang Wentao agreed to set up a group to “seek solutions on trade and investment issues” following multiple hours of discussions in a sign that Washington is changing its attitude toward China.

“The world is counting on the U.S. and China to responsibly manage and maintain our commercial relationship,” the commerce secretary said, adding that “this is meant to be a dialogue where we increase transparency.”

Just days before Raimondo’s visit, the Commerce Department had removed 27 Chinese companies from a list which had prevented them from purchasing American technologies.

China’s Ministry of Commerce called the move “conducive to the normal trade between Chinese and American companies” in a statement, adding that it is now “entirely possible to find a solution that benefits companies on both sides.”

After meeting with Raimondo on Monday, Wang struck a positive tone as well. “I’m ready to work with you together to foster a more favorable policy environment, for stronger cooperation between our businesses to bolster bilateral trade and investment in a stable and predictable manner,” he told the U.S. commerce secretary.