China the new Wall Street?
Is the centre of global finance gradually moving from Wall Street to China? Goldman's vice chairman Mark Schwartz has been sent to Beijing, the new battleground for foreign banks. China is dominating Asia IPOs and the street has decided that's where the money is. Devote 3 minutes to watching Breakingviews' Wayne Arnold and Wei Gu talk about why the focus is moving to Beijing:
When it comes to capital markets Chins today is where the US was in the late 70s. For anyone, apart from multinational companies, to raise capital is almost impossible. But then came the 80s and suddenly virtually all US companies could. China is now going through a similar transition. So for international banks being downgraded by rating agencies, such as Moody's, the timing is perfect for moving in.
China opening up its financial markets
It started in April this year when China increased the amount of money that international fund managers can invest in China to $80bn i.e. almost tripled it.
Beijing wants to increase investment and competition in its financial and banking sector. Opening up its financial markets is a way for Beijing to build up the yuan as an alternative to the US dollar as a global reserve currency.
Wall Street swiftly moved in
Question is how will Wall Street's presence affect China? Will the Chinese allow the kind of new innovative financial products that Wall Street come up with on a regular basis? Is it even possible that China will be the new centre for dealing in risky financial products that could be regulated in the West? Maybe the Chinese market will be more tightly regulated when it comes to protecting China as opposed to the rest of the world?
Can China, once again, re-write the rules of competing in the global economy? Will the centre of finance gradually move from New York to China? The same investment banks may still dominate and set the trends, but their branches, or head offices, in China will be in charge?
Will China avoid making the same mistakes Japan did when building a capital market? How will China's equity, bonds and derivatives markets evolve? Is the investor mix in China changing? How will new financial products be received? Will the yuan emerge as a global reserve currency? Do you believe the centre of the world of finance will long term be in China instaed of New York?