Amid all the concerns on investors’ minds, China has risen to the fore after technology stocks were crushed earlier this week.

Due a combination of factors, the Hang Seng Tech index collapsed 11% on 14 March to its lowest level since before the pandemic. The following day it fell by a further 8.1% but then soared by 22.2% on 16 March when Beijing pledged support to try and stabilise markets.

Among the biggest losers in the sell-off was Tencent, which faces a record fine after its WeChat Pay mobile payment app was accused of money laundering by the Chinese regulator.

Due to an unexpected resurgence of Covid in both Hong Kong and mainland China, the government has locked down Shenzhen city which is a major technology hub as well as being China’s fourth largest port.

Cases in China doubled in one day, prompting measures that threaten half the country’s GDP (gross domestic product), according to Bloomberg.

Economic growth is already expected to be weak at just 5.5% this year, and there is mounting speculation China’s central bank may cut interest rates again.

Moreover, the property crisis which began with troubled real estate group Evergrande has continued to rumble on in the background with more than a dozen developers defaulting on their debt.

Yet the country’s biggest test is still to come, namely where it stands on the Russian invasion of Ukraine.

So far Beijing has trodden a fine line, refusing to condemn or support Vladimir Putin but calling for talks to resolve the situation.

Reportedly Russia has asked China for military assistance, but the US has said any country which helps Russia skirt sanctions will face reprisals themselves.

In a think-piece Hu Wei, vice-chair of the Public Policy Research Centre of the Counselor’s Office of the State Council, outlined the choice his nation faces.

The paper suggests the war in Ukraine is ‘unwinnable’ and Putin’s best option is to end it ‘decently through peace talks’. China is then likely to face a resurgent – and unified – West led by the US and NATO, so it needs to make a strategic choice now.

China’s economic ties with Russia are far less important than its links with the West, therefore it cannot be tied to Putin and needs disentangle itself as soon as possible.

‘Cutting off from Putin and giving up neutrality will help build China’s international image and ease its relations with the US and the West,’ adds Hu Wei. ‘Though difficult and requiring great wisdom, it is the best option for the future’.

Whether President Xi agrees, investors need to be prepared for more market volatility in the coming days and weeks.

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