A display screen shows share prices at Shenzhen Stock Exchange, in the southern Chinese city of Shenzhen in Guangdong province in July.
(Tyrone Siu/Reuters)Photos (1 of 1)
ECONOMIC SCENE: China’s investments pose a new global challenge
Within the next decade, China will become the world’s largest equities market.
By David Francis | Staff Writer/ September 24, 2009 edition
For a brief period in mid-July, China’s stock market edged out Japan’s as the world’s second-largest exchange. Then, Chinese stock prices tumbled some 20 percent in August, putting Japan back on top.
But watch out. Within the next 10 years, China’s stock exchange will zoom past not only Japan’s market but also the New York Stock Exchange to become the world’s largest equities market. That’s the prediction of James Trippon, editor and owner of China Stock Digest.
China will also become increasingly important in buying up companies and assets abroad, he adds.
One can almost hear the alarm bells that will go off in Tokyo, London, and New York. Headlines will warn of unsettling trends like “China Tightens Grip on Rare Minerals.” But they’ll appear on front pages instead of the business section. Governments and economists alike will further ponder a new economic order.
Of course, the world has heard such predictions before. In 1967, Jean-Jacques Servan-Schreiber published “Le défi americain,” warning that United States multinationals were buying up much of the world’s productive assets. In the 1980s and ’90s, concern shifted to Japan as its companies became top global competitors and its investors bought famous US properties.
Such fears turned out to be overblown. Will China prove any different?
The case for China is well known. Its economy is on a tear, having grown 9 percent a year for three decades. Even the “great recession” managed only to slow down the growth in its gross domestic product – its output of goods and services – from 13 percent in 2007 to between 7.5 and 8.5 percent this year, calculates Nicholas Lardy, a China expert at the Peterson Institute for International Economics in Washington.
Furthermore, China still runs a huge trade surplus, even with a big drop in exports. And it has oodles of money – $2.1 trillion in its international reserves and a government-owned sovereign fund with $200 billion. Those assets can be used to buy up foreign assets, not to mention the unknown billions more Chinese corporations have available for foreign acquisitions.
That financial surplus prompts Peter Morici, a University of Maryland economist, to advocate taxing US dollar-yuan conversions to offset the conscious undervaluation of the yuan by Beijing. He calls that currency manipulation a “predatory” policy that gives Chinese exports a leg up in international trade.
But all is not rosy in China. Its Shanghai stock market acts at times more like a casino than a marketplace. Chinese investors, limited in their ability to invest in foreign stocks, pile in and out of their own market in a hurry, creating price volatility. Many stocks are priced extremely high. Also, China is “not a major player” in the area of international direct investment, says Mr. Lardy. “China is really just getting started in the last few years.” Last year, China’s foreign investment in plants and equipment came to only $50 billion and its stock of cross-border investments reached $170 billion.
A recent Peterson Institute study notes that China’s outbound investment in 2007 was comparable with Austria’s and the Netherlands’. US investment flows were 14 times larger.
True, Lenovo Group of Beijing did make a splash in 2005 with its purchase of IBM’s personal-computer division, becoming the world’s fourth-largest PC maker. Huawei Technologies, a telecommunications-equipment manufacturer, has launched joint ventures around the world.
Still, the US has about 30 times more foreign investment stock than China. Per capita, China’s stock of foreign investment amounted to $70, compared with $9,300 for Americans and $15,000 for Germans.
Could China fulfill its potential? Sure. But potential isn’t destiny.
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Comments
2. hanyu choi | 09.24.09
let us compare america,s foreign assets($15,000 x 300 million=$4.5 trillion with america,s foreign debts(35% of gdp($14 trillion)=$4.9 trillion. so america still owes foreigners about $400 billion. china,s foreign assets($2.3 trillron-$800 billion(cumulative fdi in china)=$1.5 trillion.as one can see, china is much better off.
3. hanyu choi | 09.24.09
i made a mistake it shold be $9,300 x 300 hundred million people=$2.79 trillion. so actually america owes foreigners about $2.1 trillion insteas of $800 billion
4. mike | 09.24.09
hmm… if we are going to compare america and china in a pissing contest then maybe we should also just have a war about it (just kidding). its true chinese are starting to develop a middle class and the people are doing better. i commend the government for improving things somewhat. china has all the tools to be a great country and world leader. however, success often creates new challenges and i have no doubt china is headed for some major challenges. in those times, we will see how communism really fares.
5. wayne | 09.24.09
I am a Chinese American, and would much rather live, die and fight for the US.The best thing to do is to export our culture and personal finance practices so they too will be in debt just like us. if you look at the Japanese, they love their MTV. they have all the problems that we do-juvenile delinqency, children out of wedlock and obesity. its just a matter of time until their Chinese surplus dwindles to nothing as soon as their consumerism escalates. Just look at their stock market and macau. No sense of restraint whatsoever.
6. JPMore | 09.24.09
I think that people in China are being smarter than us. In the long run they will be number one at almost everything. It is the natural order of things; this should not be resisted, but rather embraced. We have to become more educated and efficient, both as individuals and as a nation. We waste too many resources here in the USA.
7. Susie Saver | 09.24.09
Some Americans have been through experiences that showed them how to manage without debt. The Great Depression, World War II, other wars and recessions, unemployment. They teach life’s lessons. I have been cash and carry since 1992. I have what I need. I have no mortgage, or loans. I pay my credit card off the day after the bill arrives. I live well. The credit card companies don”t like it I’m sure, but that’s their problem. Where there”s a will there”s a way.
8. Jack | 09.24.09
The reason China is doing so well is because the Government controls everything and there’s not a lot of personal choice when it come to important matters. Their environmental controls are lax, most of the population is under paid, they purposely undervalue their currency, they have child labor, they don’t have the safety standards we do here and they don’t have Unions sucking the money out of the companies like in America. With a population over 1 billion they have a much larger potential market and with billions to spend they got money to invest. Good luck America
9. krazy kadaver | 09.24.09
china, china, china. hmmm. will it matter in the future ? how will it affect the “eurobloc” ? how will it affect ASEAN bloc? the north american or western hemisphere bloc. individual nations will continue to have less dominace and blocs of nations will rise. The Eurobloc is maturing and the Asean bloc developing. so will China matter or the USA? Ultimately, nature is changing the lanscape and maybe these nations had best organize for survival of the species.
10. Joni Loring | 09.25.09
Just want to ask will it help America to buy American made products, and also is anything stoill being made in America?
11. Ben Hamper | 09.25.09
Yes! It would help a lot if Americans bought MADE IN USA products. Visit http://www.ionlybuyamerican.com
12. Jim Smith | 09.25.09
China is doing so well because THEY CHEAT! Currency manipulation, terrible labor abuses, terrible environmental abuses, complete disregard for International Copyright Law - that is how they get ahead as a nation.
If China stopped stealing U.S. software on a national scale and illegally ripping off our movies and other intellectual property, the US-China trade imbalance would be MUCH smaller.
If they treated their workers humanely, and did not act like environmental barbarians, the playing field would be much more level.
U.S. elected officials are largely to blame for this - they refuse to incorporate REAL labor, environmental and intellectual property protections into trade agreements and other opportunities and we are now reaping what the U.S. Congress and several recent administrations have sowed.
13. RHarrisonScott | 09.25.09
Who is going to bail China out when US backed securities turn toxic and uncollectible?
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1. Sathen | 09.24.09
I’m an american, and it doesn’t take a lot of brain power to see that china will eventually be world leading economic power. The differences are pretty clear. Chinese make money and save it. Americans spend money, and then borrow more so they can spend that too. Where do we spend most of our money… China. So Chinese borrow money to America, America spends the money to buy Chinese goods.
It’s not as if this is how we want it to be, our society is built this way. If i want to make money i will need a job, if i get a job i will need a way to get to that job, so i must buy a car. Chances are that since i don’t have money i will need to borrow it to get a car. Well now i’m in debt, right off the bat. Later in life i’ll need a house, and borrow for that too. It’s possible to get out of debt, but not likely, and most people never will in this country. If i was an outsider and someone asked me what country i would want to be. I’d probably pick china lol.