Key insights from Enodo Economics' Diana Choyleva's speech at the recent EqualOcean event.
"You may not be interested in China, but China is interested in you."
For a long period, China kept its financial markets closed for foreign investors. But this has changed dramatically in recent years. Now, China-originated businesses are more global than ever, with their impact growing across many regions and industries. Meanwhile, the country is opening up for foreign capital, to fuel its future growth and further integrate with the global ecosystem.
On December 9, 2021, at the 'Investing in China' Summit, a part of EqualOcean's World Innovators Meet (WIM2021), Diana Choyleva provided her take on what has caused China's latest financial market reform push and elaborated on the country's high-level strategy in the USD-led global financial order.
Diana Choyleva is a leading expert on China's economy and politics. She is Chief Economist at Enodo Economics, an independent macroeconomic/political research, forecasting and training company. Diana is passionate about helping people around the world improve their understanding of China. Providing institutional research services, she has developed a suite of online training courses that teach how China's economy, political system and financial markets work and how they impact the world.
Growth and priorities
"In the last 40 years of opening-up, China has industrialized at a breakneck speed; however, it chose to keep its financial sector largely sheltered," said Ms. Choyleva. She added that the authorities, while focusing on the catch-up growth, were constantly worried about the global competitiveness of the local financial infrastructure and key players in the space. That was preventing multi-level cross-border financial integration and kept foreign capital away from the mainland.
The situation is different these days. China's technological development, among other drivers, now allows it to pay more attention to the long-neglected field of finance. Moreover, reforms appear to be necessary for solving major internal problems, such as sky-high domestic savings.
"During the previous period, China was outsourcing its initial public offerings (IPOs) abroad, listing the biggest successful companies on foreign exchanges, to which [most of] Chinese households have no access," said Ms. Choyleva. That may have somewhat exacerbated the mainland's existing investment disbalance.
"The majority of the household wealth in China is in housing [...], and the country's equity market is treated more like a casino: there is a very short-termist attitude towards investing in Chinese equities domestically, and the market is dominated by retail investors."
Triggers: the 'common prosperity' and the looming debt crisis
"The time has come to develop China's capital markets, both in terms of bringing more of the IPOs home, so Chinese households could invest to put their wealth – to preserve in the long term and increase it – into those companies, and shifting the way from real estate as the main store of wealth for Chinese households.
There is another reason. China has used its banks as an ATM. [...] The banking sector has been the bulk of China's financial system up until now. But for a variety of reasons, bank assets have been directed to unsuccessful projects, and China has built a substantial amount of bad loans that need to be worked through. Foreign finance may help China clean up its bad debt mess in the financial sector."
Challenges, old and new
"If we were not looking at those difficult adjustments [to happen] over the next few years, I would be saying that the structural transformation that China's capital markets are going to experience finally suggests that now is the time to invest in the country's equities. [...] Unfortunately, the situation is not as simple as that."
According to Ms. Choyleva, there are two buckets of factors that complicate this transition: One includes all the implications of the massive deleveraging process that China is undergoing at the moment; the second is the prolonged geopolitical standoff between China and the United States.
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About China & The World Summit
As a part of WIM2021, China & The World Summit was hosted on December 9-10, 2021. It was focusing on the world's second-largest economy's global impact and interaction with the rest of the world.
WIM 2021 China & The World Summit is built around two major topics:
Ⅰ. Investing in China: Seeking value amid global turbulence.
Over the past decade, China has been an attractive investment destination. But will it remain one in years to come? WIM 2021 gathered global investors, senior executives, and market participants to discuss this and other questions concerning the world's second-largest economy's past, present and future.
Ⅱ. Localization & Globalization: Global enterprises' 'China story' and Chinese companies' global expansion.
China's role in the global economy has been continuously changing. As the country's market matures, the world's largest enterprises have been venturing into it – with varied success. Meanwhile, Chinese new-economy companies are also expanding their presence in foreign markets. At WIM 2021, a number of eminent experts and industry insiders discussed the most important trends and narratives at the interface of China and the rest of the world.
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About WIM2021
WIM2021 'Digital Reshaping the World' will be hosted offline in Shanghai and New York while broadcasting globally. The event covers 11 topics, including the hottest industries (from automotive to healthcare) and concepts (like Carbon Neutrality and 'Zhuan Jing Te Xin').
World Innovators Meet (WIM) is a yearly flagship event hosted by EqualOcean for the past 6 years. It is a time where international delegates gather to discuss hot button topics in China's key industries.
We see innovation as the biggest driving force to building a better world. Hence, through WIM we seek to create a platform for global innovators to connect. By uniting bright minds, we seek to foster learning, inspiration and wonder – and inspire conversations that matter.
In a short span of 6 years, WIM has grown from a local event in China to a global event that bridges the world and China by bringing together 1,500+ international speakers (including several Nobel laureates), 50,000 global attendees, and 2,000+ media and community partners.