When you look at China’s growth as a force in the global economy, you have to conclude that the strategists and policymakers have been getting a lot of things right. Overall, the country has done well to avoid the scale of debt and slide into recession seen elsewhere.
It hasn’t been all plain sailing by any means. Generally, however, there has been a clearly signalled direction with early corrective action where necessary, and mainland markets certainly haven’t imploded in a period of enormous turmoil elsewhere.
In many respects China can, and has been doing, its own thing. This shows that as the country continues to expand, there is no need to force it into the mould of Western economies. It doesn’t make sense to think every economy must travel a standard route from emerging to developed market status.
As China matures, however, issues like corporate governance and accounting transparency will start to play a larger role in the way businesses there are managed and assessed – at least, one would hope so. Tighter regulations are particularly important from the viewpoint of attracting and working successfully with overseas investors.
Although it is just one aspect of the transition and development now taking place, I would hope to see foreign institutional investors become a larger part of the trading volume in China. This may take time a while, but I believe it will eventually happen. The question is more one of timing and what pattern to follow.
The big hope is that bringing more institutional investors into mainland markets will smooth the volatility and improve information about the true value of listed companies.
I don’t think doing that will change the behaviour of individual mainland investors per se. But we can predict, though, that in parallel with other changes, retail investors will want more exposure to opportunities outside the country. Here, too, it is a matter of how you do it, but at some point demand and pressure will build and authorities will have to find ways to make it happen.
In the MSc global finance programme offered jointly by the Hong Kong University of Science and Technology and the New York University Stern School of Business, topics like these are introduced to get students thinking strategically about decisions made, and actions taken, in China and the world’s other major financial markets.
We encourage them to explore the potential impact of various scenarios. For example, if an emerging market sees a bubble and prices drop, there could be a period of greatly reduced activity as people who have been burned stay away. Alternatively, different parameters may create a whole new range of opportunities.
Professor Mark Seasholes, associate professor and academic director for the HKUST-NYU Stern Master of Science in Global Finance (MSGF) programme
As told to John Cremer
