China's Economic Challenges: Capital Outflow, Normalizing Relations, Delayed Investments, and a Failed Charm Offensive

China is expected to experience a capital outflow of $65 billion in 2024 as a result of elevated geopolitical risks and waning investor sentiment, according to the Institute of International Finance (IIF). The IIF also noted that Chinese bonds have been experiencing consistent outflows from foreign investors throughout the year. The wide US dollar-yuan yield spread is expected to persist due to the People's Bank of China's dovish stance, exacerbating capital outflows. Beijing's deteriorating relations with the West and concerns over de-risking, reshoring, and technology embargoes are seen as main downside risks for Chinese assets. The IIF forecasts China's real economic growth to be 5% next year, driven by the stabilization of the housing market and moderate global demand for Chinese exports.