• ‘Dr Doom’ high­lights global fi­nan­cial risks

China Daily European Weekly - - NEWS DIGEST -

Vet­eran ex­pert says China can learn from the mis­takes ofWestern economies as it plays an in­creas­ingly influential role

An­other is­sue is the dif­fi­culty in bal­anc­ing fi­nan­cial in­sti­tu­tions’ re­spon­si­bil­ity for pro­vid­ing the pub­lic with credit and en­tre­pre­neur­ial drive, which is still very much an un­re­solved is­sue forWestern banks.

Kauf­man sees US Pres­i­dent Don­ald Trump’s at­temptto dis­man­tle the strict fi­nan­cial reg­u­la­tion within the Dod­dFrank Act, re­plac­ing it with new poli­cies to en­cour­age eco­nomic growth, as dan­ger­ous.

“I think it’smuch­too early todothat. We still have vivid mem­o­ries of 2008,” he says.

The Dodd-Frank Act, which was cre­ated as a re­sponse to the 2008 cri­sis with a fo­cus on res­train­ing banks from risk-tak­ing and im­prov­ing con­sumer pro­tec­tion, was con­sid­ered the largest fi­nan­cial reg­u­la­tion over­haul since the 1930s.

Mean­while, Kauf­man says China’s in­creas­ing par­tic­i­pa­tion in the global fi­nan­cial mar­kets has huge im­pli­ca­tions for cap­i­tal mar­ket par­tic­i­pants and politi­cians glob­ally.

He names China’s fi­nan­cial mar­ket lib­er­al­iza­tion, ren­min­bi­in­ter­na­tion­al­iza­tion and the coun­try’s ac­cu­mu­la­tion of large for­eign re­serves as key ex­am­ples.

“The Chi­nese cur­rency has be­come an im­por­tant cur­rency in the fi­nan­cial mar­kets of the world; there­fore its move­ment is looked at more care­fully. As China opens more, that will im­provethe flow of­money glob­ally,” he says.

The ren­minbi’s ad­vance to­ward re­serve cur­rency sta­tus was sig­nif­i­cantly en­dorsed by its join­ing of the IMF’s SDR bas­ket of cur­ren­cies in Oc­to­ber. As of April, China’s for­eign ex­change re­serves stood at more than $3 tril­lion.

China has in­creas­ingly opened its do­mes­tic mar­ket to for­eign par­tic­i­pa­tion in its on­shore cap­i­tal mar­kets. For ex­am­ple, the Shang­hai-Hong Kong Stock Con­nect es­tab­lished in 2014 al­lowed in­ter­na­tional in­vestors to trade shares listed in China’s do­mes­tic stock ex­changes through Hong Kong, which is treated as an off­shore fi­nan­cial mar­ket.

China last year also took sev­eral cru­cial steps to lib­er­al­ize its do­mes­tic bond mar­ket for in­ter­na­tional in­sti­tu­tional in­vestors, and it ex­pects a stronger over­seas ap­petite due to di­ver­si­fied needs, es­pe­cially when Chi­nese bonds be­come in­creas­ingly in­cluded in over­seas bond in­dexes.

“China also plays an im­por­tant role in the cap­i­tal flows among na­tions,” he says, adding that China-US re­la­tions are be­com­ing in­creas­ingly im­por­tant. He an­tic­i­pates there will be more po­ten­tial for co­op­er­a­tion.

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