By You Luo
The most interesting thing to watch last week was certainly
Beijing's Financial Work Conference, despite the debate featured in
all the media over whether Starbucks coffee should be driven out of
the Forbidden City.
Not all the Financial Work Conference's policy proposals have
yet been released to the public, as the nation's key financial
institutions are still holding their own meetings to set their work
agenda for the year that has just begun.
But whatever the specific policies, the stage is already set for
China's domestic capital market to show unprecedented liquidity and
become one of the world's main magnets for investor
money.?
Rumor abounds in Chinese-language financial newspapers about
millions of US dollars pouring into the Chinese stock market, now
partially open to overseas investors.
Supposedly, one manager was asked to handle US$700 million,
probably from some large international hedge funds. Some people
estimate that there could be as much as $80 billion worth of
international hot money already inside China.
It doesn't matter whether the rumor can be confirmed. The basic
facts are beyond doubt: With 20 trillion yuan ($2.57 trillion) in
its 2006 GDP and close to 10 trillion yuan (US$1.29 trillion) in
domestic stock market capitalization, China is a new breeding
ground for the world's largest corporations and merger and
acquisition deals.
With few ready channels to other investment markets, China's
domestic capital from social security funds to private savings is
large enough to send its stock market skyrocketing. Enough signs
were seen in 2006, when the domestic yuan-denominated A-share index
almost doubled in just a few weeks before the end of the year.
Even though A-shares are now supposedly only traded by domestic
and licensed foreign institutional investors on the Chinese
mainland, there is no way to completely block or effectively check
the international money flowing into the market. I personally have
some friends, mostly overseas Chinese, who have been busy
stir-frying the A-shares quite happily for the last few months.
I was not surprised about the rumor that Lenovo plans a domestic
listing in addition to its Hong Kong listing. And if I were
Lenovo's finance advisor, what I would say to Lenovo Chairman Yang
Yuanqing is: "Do it. Better do it now."
Having said all this, it will be for the benefit of the entire
world if the central government in Beijing can handle its
"financial work" with new concepts and new skills. Despite the old
name, Beijing's financial work is vastly different now from just
two years ago, and increasingly changing. There will be a day, not
far from now, when the renminbi is fully convertible and the
A-share market completely open to international investors,
including all the hot money that can easily throw a careless
government into a helpless state.
For one thing, controlling the market by dividing its players
into different classes and sectors, a method used in the past, will
no longer apply. The system will have to shift to the control of
process, which requires minute-to-minute monitoring and swift
reaction in regulating all players.
So it is right that this year's Finance Work Conference did not
accept the proposal for setting up a super bureaucracy to control
the State-owned financial institutions. Following such a proposal
is like wasting time on whether to have a Starbucks in the
Forbidden City.
Instead, to have a responsible and truly independent financial
auditing system is a much more pressing task.
(China Daily January 22, 2007)