China’s re­forms ‘ hit­ting right note’

China Daily (Canada) - - ACROSSAMERICA - By AMY HE in New York amyhe@chi­nadai­lyusa.com

China has to go through a “very, very painful eco­nomic re­struc­tur­ing process” to re­bal­ance the econ­omy, but its re­form ef­forts so far have been “hit­ting the right note”, says a long-time hedge-fund man­ager.

Guo Sheng­bei, founder and CEO of hedge fund GSB Podium Ad­vi­sors, said that he has al­ways main­tained a bear­ish out­look on the Chi­nese econ­omy, which has re­lied on in­vest­ment and ex­port-driven poli­cies. A strength of Chi­nese eco­nomic growth was its ex­ports to other coun­tries and us­ing its for­eign re­serves as sav­ings. De­spite this ap­proach, it to­tally stopped in 2008 af­ter the fi­nan­cial cri­sis, but Guo said that China has done well in re­form­ing its fi­nan­cial sys­tem ever since.

Guo, a for­mer man­ag­ing di­rec­tor of Deutsche Bank and for­mer vice-pres­i­dent at Mor­gan Stan­ley, made his re­marks on Wed­nes­day in New York at a panel dis­cus­sion on China’s cap­i­tal mar­ket. It was or­ga­nized by the Chi­nese Busi­ness and Cul­ture De­vel­op­ment Cen­ter in North Amer­ica.

“China will be­come a very im­por­tant fi­nan­cial player, not mea­sur­ing purely from the size of China’s stock mar­ket. I’m talk­ing about China’s con­nec­tion to the in­ter­na­tional mar­ket place,” Guo said. “That is go­ing to be­come a very, very im­por­tant force in the fu­ture. I think the global fi­nan­cial sys­tem is de­ci­sively shift­ing into China’s fa­vor in the next cou­ple of years.”

Liu Xiaoguang, con­sul in charge of eco­nomic and commercial af­fairs at the Con­sulate of China in New York, of­fered sim­i­lar com­ments, say­ing that China’s econ­omy has got­ten off to sta­ble start this year, with first-quar­ter GDP mea­sur­ing 7.4 per­cent.

“Sta­tis­tics show that ur­ban em­ploy­ment con­tin­ued to in­crease. In­di­vid­ual in­come, cor­po­rate prof­its and fis­cal rev­enue reg­is­tered steady growth,” he said. “Con­sumer prices re­main sta­ble. Growth of elec­tric­ity con­sump­tion started to rise and there were pos­i­tive dy­nam­ics and also ad­just­ments.”

Liu re­it­er­ated re­marks made af­ter the third plenum in Novem­ber, say­ing that the govern­ment seeks to deepen re­form and will let the mar­ket play a de­ci­sive role in the econ­omy. China will seek to es­tab­lish a stronger ser­vice sec­tor — which Liu said was a “weak link” in the econ­omy right now—and one of the ways of do­ing that is open­ing up its cap­i­tal mar­ket, demon­strated by the es­tab­lish­ment of the Shang­hai-Hong Kong stock ex­change con­nec­tiv­ity, an­nounced ear­lier in April.

“This will fur­ther pro­mote two-way open­ing up and es­tab­lish a healthy de­vel­op­ment of cap­i­tal mar­kets on the main­land and in Hong Kong,” Liu said. “We will con­tinue to raise the level and qual­ity of open­ing up by show­ing a deeper in­te­gra­tion with in­ter­na­tional mar­kets.”

China’s out­bound in­vest­ment was around $4 bil­lion last year, 2 and a half times greater than the year be­fore, and has in­vested $1 bil­lion in the US in this year’s first quar­ter, ac­cord­ing to Liu. The coun­try is also no longer re­quir­ing that out­bound in­vest­ments of un­der $1 bil­lion be sub­ject to ap­proval, Liu said, which will fur­ther open up China’s cap­i­tal mar­ket.

“We’re happy to see businesses im­prov­ing in the US, in­di­cat­ing the climb­ing up of its econ­omy, and at­tract­ing more in­vestors from China,” he said. “Most of us be­lieve that things are get­ting bet­ter. As all of us sur­vived the cri­sis, this means more and more op­por­tu­ni­ties are emerg­ing.”

Jennifer Car­pen­ter, a pro­fes­sor of fi­nance at New York Univer­sity, took a more mea­sured stance and said that sys­temic risk in China’s fi­nan­cial sys­tem is “great” and may be get­ting greater over time.

Af­ter the fi­nan­cial cri­sis, econ­o­mists charted how much each coun­try would need in case bailouts for an­other cri­sis were nec­es­sary, and China has jumped from need­ing the sixth largest amount in 2012 to switch­ing with Ja­pan in 2013 to need­ing the high­est or sec­ond high­est amount.

“China’s now top­ping the charts for sys­temic risk by these mea­sures,” Car­pen­ter said.

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