After the U.S.-China trade negotiations, the Chinese financial market will undergo structural changes. This should not come as a surprise, since the further opening-up of the Chinese financial market is itself one of the focus of the negotiations. The most powerful commodity in the world that the United States possesses is neither a type of technology nor a product, but instead the U.S. dollar. Therefore, how the dollar fares in the Chinese market, its competitiveness and the influence of its dominance have always been a major issue of concern to the United States.
Under the pressures of the U.S.-China trade friction, China has chosen to open-up its market, among which the most important aspect being the financial opening-up. In China presently, its bond, stock, futures and rating markets, as well as brokerage and investment banking markets have all increased their opening-up to the outside world. Overseas funds are in the process of being deployed and have increased their access to the Chinese capital market. Hedging tools such as futures that are in a state of strict management are also expected to be included in the opening-up. Compared with the current financial market in China and the financial market in previous periods of rectification in general, if previous cleaning-up and rectification is on the restrictive side, then the future Chinese financial market will be on the side of opening-up.
Foreign investment would be the first to adjust to such changes. More and more Chinese financial market trading products would have been included in the index, such as the MSCI index, FT FTSE index and Bloomberg's bond index among others. All these coupled with the service guidance and the driving factor of technology will increase the allocation of international capital to China's capital market and encourage more foreign capital to enter China.
What then, does the large amount of foreign investment in mean to the Chinese investors?
The Chinese capital market will see a large number of individual investors gradually giving way to institutional players. In the future, the main players of the Chinese securities market will mainly belong to three types. The first is foreign institutional investors. This would be professional players. The second is state-owned capital, including large state-owned enterprises and state-owned financial institutions. The third is the remaining individual investor. The transparency of the market will be higher than in the past, but the participation remains relatively low. The individual investors will be squeezed out and they will no longer be able to participate in the market, or at least it will be harder for them to participate. The invisible threshold is getting higher by the day, and likewise the same is happening to the cost as well.
Among these groups, the Chinese state-owned investment power mainly engages in state-owned listed companies. This can act as a stability force in the market. The scope of foreign investment will be quite extensive, but their main purpose is to make money. The major individual investors are only a kind of supplementary force as their main investment direction is to choose a side. Hence it is hard of them to form a dominant influence. In addition, the force of individual investors can be shattered easily. In the securities investment community, the well-known personalities in this field who conduct bargain-hunting is now generally the thing of the past.
Such changes will inevitably change the ecology of the Chinese capital market in research consulting services, investment philosophy, demand for ancillary services and rating services. Changes in the service target will inevitably lead to further changes in the financial format. Moreover, such changes have both advantages and disadvantages for Shanghai as a financial center city in China, and there will be changes or adjustments in Shanghai as well.
Financial opening-up also means that China's finance is connected to the world and will have an increasingly close relationship with the global financial market. This also means that the reserves of the Chinese policy department should be greatly improved and be well-prepared. Otherwise, the impact from the external environment and the internal market cannot be stabilized. In addition, the possibility of administrative intervention is decreasing, which mean that the management difficulty of China's securities market has been greatly increased.
Final analysis conclusion:
As financial opening-up is the path that China should tread, its issue is mainly about adapting to relevant policies. This requires time and will be challenging, and there will be no be fundamental changes within short-term. On the other hand, the flow of funds will change the Chinese securities market. Some Chinese companies' funds will be absorbed by foreign capital, while some corporate funds overflow from the securities market may turn to industrial capital. If this kind of capital shift occurs, the results will be quite significant and will produce a series of complex effects.
