China always is on the financial market radar. It is also on the radar screen of economist David Hale, chairman of David Hale Global Economics, who just finished a report on China called “China’s New Dream.” (It can be found here in a PDF.)
What is notable to Hale is that the plenary session of the Communist Party Central Committee in November 2013 announced major reforms to help boost China’s economy over the next decade. That means that market forces, and market structures, will now play a “decisive role” in re-shaping China’s economy, which is considered a substantial upgrade in language from prior communiques which said market forces will play a “basic role.”
But what does that mean – “decisive?” A lot actually. China has been building modern market structures for some time – developing young equity and futures exchanges and slowly rolling toward a floating currency. Equity options markets also are firmly in focus, according to a recent JLN story from Sarah Rudolph called “Options – and the Options Industry Council – Come to China,” which details how three educators recently met with the Shanghai Stock Exchange, China Financial Futures Exchange (CFFEX), and Wo Tai Junan Futures, the fastest growing broker in China.
Hale’s report says “China will liberalise its financial system, increase dividends from state-owned enterprises, enhance the role of small and medium-sized enterprises…” among other items. One of the key components to a vibrant financial system is China’s investment pool, which has seen investors seek stronger returns in the burgeoning shadow banking and investment sector. Trust banks, for example, are paying yields of 6 percent, double that of state-owned banks, and now account for more than 10 percent of China’s bank deposits. There are credit risks associated with some of these products, but that is really no different than most western countries.
Hale also goes into some detail about all the challenges China faces internally, from its aging population and changes to its one-child policy, and environmental and energy problems.
Hale points out that China has a long way to go on many different elements of its economy, but one could connect the dots, and come up with the forecast that financial markets will be a critical and growing component of the Chinese economy going forward.