Q. Europe is China’s main commercial partner; how do you see this relationship, and what are the possible developments and common interests?
A. The relationship is numerically excellent. Europe, Germany in particular, and then Italy, have participated in heavily in China’s industrialization by exporting machinery. This flow is still valid and present, but the opening of other sectors, such as consumer goods, has not followed. This has penalized Italy in particular. There are common interests, but at the moment they are skewed towards the Chinese, who have a stronger bargaining position due to their size and success. Additionally, commercial exchange has not found the same success in investments going both ways. The increase in commerce between China and Europe in particular has created difficulties for companies producing low added value goods (low-end clothing, tiles, etc.) but has opened opportunities for high added value producers (luxury, machinery, etc.), contributing to the reallocation of capital. This has also contributed to the good performance of countries like Germany, with their world-class machinery sector, and France, whose luxury producers are big enough to fully exploit the Chinese market, with regards to other European countries that lack high-value-added brands.
Q. How is the Dim Sum Bond market in Hong Kong doing?
A. The Dim Sum Bond market has slowed down considerably due to the slowdown of the Chinese economy: in fact, many companies have not needed capital to invest in China in recent months.
Q. Shanghai is destined to become the new Asian financial capital, like London in Europe. How is the relationship with Hong Kong, and what will happen? Or is the real competition going to be with Singapore?
A. According to the Chinese government, Shanghai was supposed to become Asia’s financial capital in just a few years. That project is limping along at the moment, because the legislation for the internationalization of the Renminbi, the linchpin of the entire plan, is not yet ready and is moving along very slowly. Any investors of consequence are hesitant to count on Shanghai, which protects Hong Kong’s position. Singapore is a distant platform, oriented towards Southeast Asia and the Anglo-Saxon markets. Until the Renminbi becomes freely convertible, Shanghai will always be at a disadvantage due to its legal system when compared to London, New York, or Hong Kong, who all favor the Anglo-Saxon legal system.
Q. Can you describe the attitude of Chinese investors with regards to portfolio investing, and is there a growing online trading phenomenon like in Italy, o better yet Korea?
A. Online trading is on the rise in China, but the growth rate has slowed since 2008, when the Shanghai index fell sharply, similar to what happened on the Nasdaq in 2001.
Q. What is the next step for the internationalization of the Renminbi, and when will it be fully convertible?
A. The amount of offshore Renminbi (called CNH) is increasing, but in general we do not anticipate great changes in the near future. There may be some substantial changes during the next period of strong growth.
Q. Analysts anticipate that China will definitively surpass the United States in 2020, following the overtaking of Japan two years ago. Do you agree?
A. Capital has decreasing marginal returns, and so China needs to invest ever more in infrastructure to maintain the same growth. After a certain level of per capita GDP, growth needs to stem from technological innovation. It will be the ability of Chinese companies to innovate (and of China’s legal system to protect that innovation) that will allow China to pass the US and become the world’s largest economy. The overtaking is possible, and probable. It will nevertheless be an event that brings historical indicators back to their resting position; that China will have the world’s biggest economy should come as no surprise, given its dimensions. Anything else would be unusual. It will be a mainly psychological impact when it happens, because economically it is already expected.