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China’s rising stature in global finance
The country’s financial markets are deepening, foreign investment keeps pouring in, and capital is flowing outward. What would it take for China to assume a new role as world financier?
China, as the world’s largest saver, has a major role to play in the global financial rebalancing toward emerging markets. Today, these countries represent 38 percent of worldwide GDP but account for just 7 percent of global foreign investment in equities and only 13 percent of global foreign lending.1 Their role seems poised to grow in the shifting postcrisis financial landscape, since the advanced economies face sluggish growth and sobering demographic trends. As a lead player in that shift, China could become a true global financier and, with some reform, establish the renminbi as a major international currency.
Yet a long-closed economy—even one with more than $3 trillion in foreign reserves—can’t swing open its doors overnight. China’s domestic financial markets will have to deepen and develop further, and returns earned by the government, corporations, and households must rise if the country is to attract and deploy capital more effectively. At the same time, the barriers that prevent individuals and companies from investing more freely outside the borders of China, and foreigners from investing within them, will have to diminish gradually, and the country must build the trust of global investors. Continued reform in China, coupled with its vast domestic savings and outsized role in world trade, could make the country one of the world’s most influential suppliers of capital in the years ahead.
Growth and growing pains in China’s markets
As China’s financial markets have become more robust and deeper, the value of its domestic financial assets—including equities, bonds, and loans—has reached $17.4 trillion, trailing only the United States and Japan (Exhibit 1). That’s a more than tenfold increase in a span of two decades, and it doesn’t include Hong Kong’s role in channeling funds to and from China.
Exhibit 1
A surge in lending has boosted China’s financial assets by $3.8 trillion since 2007, but growth has not kept pace with that of GDP.
In contrast to most advanced economies, where lending has been stagnant amid widespread deleveraging, bank loans in China have grown by $5.8 trillion since 2007, reaching 132 percent of GDP—higher than the advanced-economy average of 123 percent. About 85 percent of that Chinese lending has been to corporations; households account for the rest. This rapid growth has raised the specter of a credit bubble and a future rise in nonperforming loans, though regulators have attempted to slow the pace in overheated areas such as real estate.
China’s corporate-bond market is also developing. Bonds outstanding from nonfinancial companies have grown by 45 percent annually over the past five years, bonds from financial institutions by 23 percent.2 There is ample room for further growth, since China’s levels of bond-market borrowing are significantly below those of advanced economies. Indeed, bond financing could provide an alternative source of capital for the country’s expanding corporate sector, enabling banks to increase their lending to households and to small and midsize enterprises.
Unlike many major equity markets, China’s stock market has not rebounded since the financial crisis and global recession. Total market capitalization has fallen by 50 percent since 2007, plunging from $7.2 trillion in 2007 to $3.6 trillion in the second quarter of 2012. Investors sent valuations soaring at the market’s peak, but fears of a slowdown and a more realistic view of company valuations dampened their enthusiasm, underscoring the fact that China’s equity markets, like those of other emerging economies, remain subject to sharp swings.
Cross-border investment surges
China has defied global trends in cross-border capital flows, which collapsed in 2008 and remain 60 percent below their precrisis peak. For China, by contrast, foreign direct investment (FDI), cross-border loans and deposits, and foreign portfolio investments in equities and bonds are up 44 percent over 2007 levels (Exhibit 2). Total foreign investment into China reached $477 billion at the end of 2011, exceeding the 2007 peak of $331 billion.3 Foreign companies, eager to establish a presence in China, account for roughly two-thirds of the inflows.
Exhibit 2
China’s capital flows have been approaching new heights.
Capital from foreign institutional and individual investors could provide another leg to growth as long-standing restrictions on foreign portfolio investment continue to ease. The number of qualified foreign institutional investors (QFII) approved by Chinese regulators has grown from 33 in 2005 to 207 in 2012 and will undoubtedly rise further. Regulators also are giving registered foreign funds more latitude to invest their holdings of offshore renminbi in China’s domestic capital markets. Both moves have further opened the door to foreign participation in those markets.
Famously, the People’s Bank of China, the nation’s central bank, has accumulated the world’s largest stock of foreign-currency reserves: $3.3 trillion at the end of 2012. While much of this money is invested in low-risk sovereign debt—for instance, US treasuries, which account for at least $1.2 trillion of China’s reserves—the growth in such investments has slowed considerably. Instead, China is both loosening restrictions on other types of financial outflows and moving to diversify its foreign holdings. That was the impetus behind the 2007 creation of the China Investment Corporation (CIC), one of the world’s largest sovereign-wealth funds, with assets of $482 billion. CIC’s holdings include shares in many of the world’s blue-chip companies; mining, energy, and infrastructure projects; global real estate; and even a stake in London’s Heathrow Airport.
Chinese companies are also stepping up their role in global finance. Foreign direct investment by both state-owned and private-sector Chinese companies grew from just $1 billion in 2000 to $101 billion in 2011. At the end of 2011, Chinese companies accounted for $364 billion of global foreign direct investment, with most of it tied to commodities. About half of these investments went to other emerging markets—a share higher than that for companies in advanced economies.
Much of China’s rapidly increasing global lending is tied to foreign investment deals involving Chinese companies (for instance, financing a mine in Peru, with construction to be undertaken by a Chinese company). Outstanding foreign loans and deposits totaled $838 billion at the end of 2011. To put this sum in perspective, consider the fact that the total level of loans outstanding from the world’s five major multilateral development banks is about $500 billion. Since 2009, Chinese loans to Latin America have exceeded those of both the Inter-American Development Bank and the World Bank (Exhibit 3).
Exhibit 3
China now provides a higher volume of loans to Latin America than the World Bank and the Inter-American Development Bank.
Africa is another priority. At the 2012 Forum on China–Africa Cooperation, China pledged an additional $20 billion in new lending to that continent over the next three years. In March 2013, President Xi Jinping traveled to Africa for his first overseas trip as head of state, reaffirming this lending pledge and signing an agreement to build a multibillion-dollar port and industrial zone in Tanzania.
So far, the returns on many of China’s investments at home have been below their cost of capital. There is almost an expectation of low returns—in some cases, negative real returns—on corporate invested capital, on domestic bank deposits, and even on returns the government earns on its foreign reserves. The returns that will be earned on many of China’s recent foreign direct investments and foreign loans remain to be seen. The pace and process of the migration to market-level returns will be a challenge for policy makers.
The long road to renminbi convertibility
As China’s economy and financial clout continue to grow, so will use of the renminbi. China has aspirations to make it an international currency, perhaps eventually rivaling the US dollar and the euro for global foreign reserves. But realizing these ambitions will require substantial progress on several fronts.4 One is developing deep and liquid domestic capital markets for renminbi-denominated financial assets. Despite the progress described above, China’s financial depth (the total value of its financial assets as a share of GDP) remains less than half that of advanced economies. Developing larger bond markets, as well as derivatives markets to hedge currency and other risks, will be essential.
To take on a greater global role, the renminbi must also become an international medium of exchange. In recent years, China has promoted the use of its currency to settle international trade contracts; for instance, it has created swap lines to supply renminbi to 15 foreign central banks, including those of Australia and Singapore. As a result, the use of the renminbi in China’s trade has grown from around just 3 percent several years ago to an estimated 10 percent in 2012. According to a survey by HSBC, Chinese corporations expect one-third of China’s trade to be settled in renminbi by 2015.5
However, to become a true international currency, the renminbi will have to be fully convertible—meaning that any individual or company must be able to convert it into foreign currencies for any reason and at any bank or foreign-exchange dealer. China’s central bank has acknowledged that the time has come to move in this direction and accelerate capital-account liberalization,6 and it recently outlined both short-and long-term road maps for this process. Short-term moves could include reducing controls on investment directly related to trade and encouraging Chinese enterprises to further increase outward foreign direct investment. For the longer term, the bank has outlined actions such as opening credit channels to flow both into and out of China and moving from quantity- to price-based approaches to monetary policy management. And over time, China will need to build trust in its institutions by developing a set of rules, applying them consistently, and sticking with them.
For now, however, the doors remain only partially open. Achieving the institutional development needed to fully liberalize capital accounts and remove currency controls will take time.
To assume the role of financier to the world, China will have to embrace financial globalization and advance reform more fully, and that won’t happen overnight. There is already movement toward greater openness, though, which makes China’s recent once-in-a-decade leadership transition a telling moment: if the new economic team picks up the pace of reform, the world financial system could have a very different look in just a decade’s time.
Abrazos,
PD1: Este hombre llega a la misma conclusión que llegué yo hace muchos meses. Es imposible que tengamos hoy el mismo PIB que en 2007. Imposible. Ha habido manipulación total de los datos estadísticos a favor de los políticos que ocultan la realidad, como cuando decían que el ladrillo nunca bajaba… Si te quieres acojonar del todo, léete esto:
La escandalosa manipulación de las cifras de Contabilidad Nacional
Para la totalidad de las personas con las que hablé, la relación entre variación del desempleo y variación del PIB hace absolutamente imposible que el PIB sea el oficial. Cogiendo por ejemplo el año 2012, el PIB oficial cayó un 1,5% mientras que el desempleo subió un 3,9%. Esta relación es un imposible económico. Según la conocida Ley de Okun, “por cada 2% que desciende el PIB la tasa de paro aumenta un punto porcentual”, lo que significa que si el desempleo aumentó un 3,9% el PIB tuvo que caer en teoría un 7,8% y no un 1,5 %. Sin embargo, esta ley, que se cumple perfectamente para tasas de paro entre el 3 y el 7%, para tasas del 26% hay que extrapolar los modelos econométricos más recientes y la relación pasa a ser de 1,2 o 1,3 a 1, lo que significa que la caída del PIB en 2012 necesariamente tuvo que situarse ente el 4,6 y el 5%. La cifra oficial es un puro disparate.
Si en vez del año 2012 consideramos los cinco años de crisis desde 2008 a 2012, la cifra es un auténtico insulto a la inteligencia. ¿Se pueden creer ustedes que, según estos tramposos, el PIB de 2012 es, en términos reales, exactamente el mismo que en 2007? 1,049 billones de euros en 2012 frente a 1,050 billones en 2007. Resulta que tenía razón Zapatero: ¡no ha habido ninguna crisis! Mis amigos americanos se partían de risa con estas cifras. Ahora vayamos al desempleo: hemos pasado de una tasa del 8,6% en 2007 a otra del 26% en 2012, un aumento de 17,4 puntos. Eso quiere decir que el PIB no ha podido permanecer constante, sino que ha caído entre un 20,8% y un 22,6%, una media del 21,7% menos u 832.000 millones de euros, no 1,049 billones. Exactamente a la misma cifra llegó en este medio Juan Carlos Barba utilizando la evolución de los principales componentes del PIB estimados por indicadores independientes y no manipulables.
Otra manera de comprobar la flagrante manipulación de la cifra de PIB es su correlación con los ingresos impositivos, incluidos los de comunidades autónomas y Administraciones locales. En 2007 estos ascendieron a 212.000 millones para un PIB de 1,05 billones. En 2012, después de las mayores subidas de tipos impositivos de la historia que, si incluimos el impuesto de patrimonio, son no de los más altos, sino los más altos del mundo desarrollado. Los ingresos impositivos cayeron un 22% hasta los 168.000 millones para un PIB oficial supuestamente análogo al de 2007 en términos reales. La burla es tan inaudita que debería acarrear responsabilidades penales, ya que están engañando a millones, llevándolos a tomar decisiones disparatadas de compra o de inversión que les arruinarán o les ocasionarán grandes pérdidas.
PD2: Sobre el crecimiento de China:
Bolton, de Fidelity, declara que "la gente se obsesiona demasiado si la economía china crece al 7,8% o al 7,9%. Mi visión es que las tasas de crecimiento económico chino descenderán; no pueden mantenerse a este ritmo, pero este nuevo ritmo será mucho más saludable. El mejor momento para invertir en la Bolsa japonesa no fue cuando su economía crecía más rápidamente; fue de hecho cuando su ritmo disminuyó en los años 70 y 80 cuando los inversores ganaron más dinero. Esto es China. Se puede ganar dinero”.
Si se cumple este argumento, quizás aún no es el momento de invertir en la Bolsa china, aunque no deberíamos estar muy lejos. Los excesos de deuda bancaria y parabancaria (shadow banking) y la enorme inversión en infraestructuras y vivienda en China han provocado una reciente crisis de liquidez.
Como decía Kostolany, tendencia es igual a psicología más dinero. Ya ocurrió en la bolsa alemana post-II Guerra Mundial. A pesar del boom de reconstrucción en un país destrozado, no había dinero para la bolsa, todo iba a la reconstrucción. Cuando pasó esta fase de gran crecimiento económico y el Bundesbank subió tipos de interés para enfriar la economía, el dinero generado buscó la rentabilidad de la bolsa y esta finalmente subió.
PD3: No hay que escuchar a la troika, ni al FMI porque no dan ni una. Dos meses antes del default de México en el 94, ponían al país como ejemplo… Siempre se columpian…
PD4: Apalancamiento bancario:
PD5: Ratings tras últimos cambios:
PD6: Previsiones Morgan Stanley:
PD7: Dudo que seas capaz de leer tanto… Pero te aseguro que en el matrimonio cada uno espera algo del otro. ¿No nos habremos olvidado de hacer cosas? ¿No estaremos metidos en una machacona rutina de trabajo, descanso, crianza de niños…, todo demasiado organizado, todo demasiado repetitivo? ¿No habremos dejado de pensar en, o de querer al otro…, de darle nuestro tiempo? La convivencia es un trabajo de dos, y las rupturas matrimoniales se producen porque fallan muchas cosas…Te presento una larga lista americana hecha para mujeres. Allí son muy desinhibidos, aquí nos da más vergüenza decir ciertas cosas… A mí los puntos que más me gustan, aunque se sonrojen mis hijos, son el 1, el 17, el 25, el 32 y el 44…, y tal!
2. Send him an email. Example: “Praying for you today. Thanks for being so courageous in [insert specific area].”
3. Give him one night on a regular basis to do something he loves.
4. Consistently mention ways you see him growing to be more like Christ.
5. Ask him about his “bucket list.”
6. Give him a book, audio CD, or ticket to learn about something he loves doing.
7. Ask him about some dreams he has — and pray about them together, evaluating them. Then ask how you can help him go after them.
8. Text him. Example: “REMINDER: I BELIEVE IN U.”
10. Leave sticky notes in his lunch, on his steering wheel, in his briefcase, etc. “So proud of all you’ve been doing with ___.” “You are so great with our kids.” “You are my dream come true.” “You are an incredible lover.”
11. Suggest that he take some time to go pursue a hobby.
12. Leave a message on his voicemail: “Thanks for going to work every day to take care of our family. You are so good at what you do.”
13. Ask him how you can pray for him at work. Later on in the week, ask about his prayer requests again.
14. Be proactive about doing something together that he really enjoys: make a date, get him excited, and share his enthusiasm!
15. Tell him areas he’s gifted in. Don’t stretch the truth; be honest so he can trust you.
18. Start and keep a “Dreams” binder with him. Include some travel brochures or whatever gets you excited. In the back, make sure you have a “Dreams turned reality!” file.
19. Talk with him about setting aside a small part of the budget to pursue the ways God has created him — through education or through sheer enjoyment.
20. Post on his Facebook wall: “I love being your wife! See me tonight regarding this.”
21. Gently communicate with him about what you like in bed, and respond encouragingly to his attempts.
22. Remember a dream that he had a long time ago. Talk with him about whether it’s still a dream — and still a possibility.
23. Ask God to open your eyes to the ways He has made your husband and to give you wisdom about how to maximize that workmanship.
24. Have your children write him notes or letters about what they love about their dad.
26. Ban yourself from any nagging, the Great Life-Sucker.
27. Ask, “If I could do one thing I’m not already doing that would really empower you and inspire you, what would it be?” Listen — resist being defensive (the hard part) — and follow through.
28. As you think of them, remind him of specific times and areas he has impacted people’s lives: “Hey, I was thinking the other day about all the time you invested in that Cub Scout troop. Wonder what those boys are doing now. It was so cool to watch them grow with you as their leader.” “Our son has grown so much in encouraging people lately. He gets that from you; you are such a good example for him in that.”
29. Buy him something small to stoke the fires: a journal for a writer; some carpentry pencils for a woodworker; some grilling tools for the master chef. Add a sweet note: “Just because I love the way you’re made.”
30. Do something fun and unexpected together: paintball; laser tag; on a spring day, have a picnic, blow bubbles, and bring the books you’re reading; swing; go to a drive-in movie, bring popcorn, and instigate a make-out session.
31. Think about a way you’ve been hurting him, annoying him, or not “seeing” him. Apologize, and work hard at showing true change.
33. Go to a home improvement store to plan a small, doable project that energizes both of you, even if it’s just painting a room or fixing up some landscaping. (Hint: Make sure it’s something by which he won’t feel burdened.)
34. Do something from his to-do list for him — something that he’d rather have you do anyway.
35. Find a mutually enjoyable activity you like doing together on a regular basis — even if it’s playing the Wii together.
36. Create a cheerful atmosphere when he comes home.
39. Pray about and pursue at least one dream of your own, talking with him about it.
40. What’s hard about his life right now? Pray for his endurance, and encourage him specifically. Galatians 6:9 is a great start for both.
42. Send a snail-mail love note to him at the office, affirming him in his work.
43. If there’s something on his “Honey Do” list at home that he finds overwhelming or has a hard time finding time to do, talk with him (respectfully and gently) about the possibility of having it hired out. Make sure he knows it’s not because you find him incompetent, but that you want to free him from a burden.
45. Be a student of your husband. Does he feel inspired if he’s got all his ducks in a row? If he’s got a creative space to think? If he feels verbally affirmed?
46. If he’s into dressing nice, go with him to shop for clothes in which he feels confident.
47. Let him overhear you speaking well of him on the phone, among friends, or in public places.
48. In his area of weakness, pray about how to subtly and gently step in and help him.
49. Tell him what a great dad he is. Be specific.
50. If and when he messes up, respond with the kind of grace, compassion, and mercy that God gives us. Respond in a way that communicates, You’re safe with me — and I’m not going to rehash your failures. This is a secure place for you to grow … and I love the journey with you.
