With the U.S.-China trade war as an example, the global wave of anti-globalization is posing a huge challenge to China's efforts in its reform and opening-up. If the global market changes to a stance that does not welcome the Chinese capital, entrepreneurs and Chinese citizens more than it did before, then what is the point of China continuing its reform, and initiating its globalization process? Fortunately, China's strategy makers are very clear on this. The Chinese government's persistence to reform and open-up has been China's successful strategy for the past 40 years. The wave of anti-globalization sweeping the rest of the world cannot change China's strategy of continuing its direction to further reform and open up to the world.
In the past 2 years, although China has been facing strong pressures from the trade-technology-finance warfare initiated by the United States, China still remains its unwavering adherence to previous commitments in multiple industrial and market domains. Such domains include the manufacturing sector (automobile manufacturing), financial services (brokerages, bond market) and other service industries (rating market). China has also revised its Foreign Investment Law, showing its sincerity in opening-up.
However, when the anti-globalization wave emerges, especially when China is increasingly becoming a target of the United States, China's should be careful in its efforts of opening-up to the global financial sector, especially in its domains and methods. Some Chinese analysts have pointed out the high economic and financial risks in China, and how the United States will still be likely to launch a financial war against China. It is precise because of this, China needs to follow the strategies of being "defensive" and "open" to be careful and pay attention to some existing vulnerabilities. Take financial measures as an example. There is a need to strengthen cross border capital management in the short term and the internationalization and marketization of capital accounts in the long term. Other than this, there is also a need for China to maintain gradual progress and take charge o its own initiative rights.
NYU Stern Professor of Economics and 2018 Nobel Laureate in Economics Paul Romer has spoken not long ago in a speech in China that financial markets will have a profound impact on the lifestyle of human beings under modern economic conditions. However, its inherent risks could be even greater than nuclear weapons, so the Chinese need to be wary of opening-up their financial markets and not go overboard as how Western financial markets had done. He also cautioned China not to accumulate too much debt, as debts are "enemy".
On September 10, in order to further expand the opening-up efforts of the Chinese financial markets, the State Administration of Foreign Exchange approved the cancellation of the investment limits for both Qualified Foreign Institutional Investors (QFII) and Renminbi Qualified Foreign Institutional Investors (RQFII) "Accredited Foreign Investors". Ever since the QF11 system was implemented in 2002 and the RQFII in 2011, upwards of 400 institutional investors from 31 countries around the world have invested in China's financial markets through these channels. The State Administration of Foreign Exchange has also canceled the relevant restrictions on exchange rates in 2018. The comprehensive cancellation of restrictions on the investment quota of accredited investors is another major measure of reform by the State Administration of Foreign Exchange in the management of foreign exchange for the relevant foreign investors. Moving forward, to equip foreign institutional investors with convenience, they only need to remit funds in order to carry out investment activities that comply with regulations, and this has greatly enhanced foreign capital's involvement in the Chinese markets. The acceptance of China's stock and bond markets by the global market will also be increased as a result.
The thing that has to be pointed out is that in China's latest strategy for the opening-up of its financial market, the most prominent element is the continued expansion of the opening-up efforts, despite a large part of such efforts are "one-sided opening-up" on China's side. This means the inwards access for overseas capital to enter into domestic financial markets have been freed up in China, yet investments to overseas markets (for example QDII) have not been increased at the same time. The policy operation reflects the complicated situation that is taking place at the moment. As the depreciation pressures continue to batter the RMB, and foreign capital leaving China, China must implement a more cautious policy. On one hand, China needs to use its huge internal market to draw more foreign capital; on the other, however, it needs to warily restrict its channel and volume of capital outflow in order to prevent huge amounts of money from leaving the country in the context of RMB depreciation. As repeatedly stressed by ANBOUND, large volumes of capital outflow and the resulting decline in asset prices, as well as the risks of debt building up are becoming more obvious. In the context of the trade war, these are highly crucial for the Chinese economy.
Eliminating the quota restrictions on QFII and RQFII complies with the strategy of "one-sided opening-up". It benefits the long term positive capital inflows into the Chinese market, sharing in the growth of China's internal capital market, and is a direct and positive factor for China's stock markets. This helps in bringing a wave of capital movement before China's National Day.
Final analysis conclusion
In the background of a deterioration in the global economic environment, China is persistent in its push for the financial market to open-up. However, as the turmoil increases in the global financial markets, and with the RMB facing bigger pressures in depreciation to its value, a "one-sided opening-up" is being displayed by China's financial market. China is allowing more foreign capital to flow into the country but at the same time, it is wary of any capital outflows.
