Reforms set to boost competitiveness
Concerns over financial opening- up misplaced: experts
China’s financial market reforms will increase domestic institutions’ competitiveness and spur them to perform better, experts said on Tuesday at the annual Summer Davos in Dalian, Northeast China’s Liaoning Province.
MSCI’s decision on June 20 to add Chinese A- shares to its benchmark Emerging Markets Index also represents a “symbolic” step, showing that China’s capital market is more open to global investors, Jing Ulrich, managing director and vice- chairman of JP Morgan Chase Asia- Pacific, said at a seminar at the Summer Davos.
The move will lead to more international capital flowing into China’s A- share market, despite an initial small weighting of 0.73 percent in the MSCI index, Ulrich said.
China’s process of opening its capital market included the launch in recent years of the Shanghai- Hong Kong Stock Connect and Shenzhen- Hong Kong Stock Connect schemes.
Currently, the two stock connect programs have total and daily quotas in order to prevent excessive flows of funds in the short term.
But Ulrich predicted that the quota will be removed within the next three to five years, as China pursues the open- ing- up in a gradual manner.
“The free flow of capital between the domestic and foreign markets is now the focus of Chinese authorities’ financial reforms, after the country has managed to open the financial services sector such as banking to foreign investors,” Li Daokui, a professor at Tsinghua University, said at the panel discussion.
Under the China- US 100- day plan for trade talks, the two countries are likely to negotiate setting up wholly foreign- owned investment banks in China in the next round, Li predicted.
At the discussion, experts also rebutted concerns that intensifying competition as a result of financial opening- up could force domestic entities out of the market.
“Openness means increasing competition, and competition will make Chinese institutions perform better, and become more efficient and globally competitive,” Ulrich said.
Li Fu’an, president of China Bohai Bank and a former official at China’s banking regulator, said at the seminar that when China’s banking sector tried to introduce foreign participants two decades ago, “industry players expressed similar concerns, but they found that the impact on domestic banks was far lower than expected.”
Foreign rivals also set good examples for Chinese counterparts to emu- late, Li said.
“China’s State- owned commercial banks, despite being large in size, still lag behind leading international banks in terms of quality, innovation, service and management,” he noted. “Opening- up would be an effective mechanism for bridging the gap.”
China now has a good opportunity to push forward its financial reform, said Li from Tsinghua University.
“Although China’s economy posted slower growth in 2016 and 2017, the trend is expected to reverse in 2018 thanks to a bounce back in private investment,” he said, adding that the yuan is not likely to face downward pressure.
Debt not a big problem
Experts at the forum also dispelled concerns over China’s relatively high debt, which was cited as one of the major reasons that prompted Moody’s Investors Service to downgrade China’s long- term local currency and foreign currency issuer ratings to A1 from Aa3 in May.
In 2016, China’s debt to GDP ratio was around 260 percent, data from the National Bureau of Statistics showed.
“Moody’s is just a small company, but China has such a big scale of economy… it’s like a shorter guy who never played basketball commenting on professional players’ basketball technique and investors should not take the Moody’s rating too seriously,” Li from Tsinghua University noted.
China’s leverage ratio is almost the same as in developed countries, but the spending structure of government debt is different, said Li, president of China Bohai Bank.
“Most local governments in China borrow money to build infrastructure, which has laid foundations for a regional economic boom,” he said, noting that in developed countries the debt is usually in the form of social insurance or public products.
“Openness means increasing competition, and competition will make Chinese institutions perform better, and become more efficient and globally competitive.” Jing Ulrich Managing director of JP Morgan Chase AsiaPacific
President Donald Trump on Thursday will lay out his plan for reducing regulations to boost already- abundant US production of oil, natural gas and coal and export it around the world, creating American jobs and helping allies.
Trump will deliver an address based on his administration’s new mantra of “energy dominance” at the Department of Energy, officials told reporters. They declined to give details on how he would tweak existing regulations that have not stopped a surge in exports.
“We’ve gone from the age of scarcity now to the age of abundance when it comes to American energy,” Mike Catanzaro, a White House energy policy aide, told reporters.
“We want to use those abundant resources for good here at home and for good abroad as well,” Catanzaro said.
Trump’s speech comes a week before he meets in Warsaw, Poland with leaders of a dozen central and eastern European nations who are eager to see more US liquefied natural gas ( LNG) in their markets as an alternative to Russian gas.
Trump is stopping at the summit on his way to the G20 in Hamburg, Germany where he is expected to meet faceto- face for the first time in his presidency with Russian President Vladimir Putin.
Shipments of LNG will play a big part in the “energy dominance” strategy, but so will ex- ports of coal and US technology that helps reduce emissions from coal- fired plants, Rick Perry, Secretary of Energy, told reporters.
Perry said he discussed the potential for US coal exports to Ukraine with President Petro Poroshenko during his visit to Washington last week.
The Trump administration believes in an “all- of- the- above” approach to energy, Perry said.
US domestic energy prices have plunged in recent years because of the natural gas boom, crowding out competing sources of power, including coal and nuclear.
Dozens of nuclear power reactors are in danger of shutting down over the next several years as a result.
The Trump administration wants to make sure the US remains “technologically and economically engaged” in the nuclear industry, Perry said.