Stop monkeying around
Twenty years ago it made sense to use Chinese new year as a peg to discuss investing in China. A decade ago it had worn thin. To do it this year was a sign of hopeless naivety.
No doubt some would see this habit as the activity of over-zealous marketing departments. The lure of dim sum clearly attracts takers to discussions on the subject. There is also ample opportunity for awful puns. So for this year – the year of the monkey – there were inevitable references to “monkey business”. More creative was the question of whether Chinese stocks would once again “go bananas”.
However, such initiatives only make sense in an environment where the significance of China’s rise is insufficiently appreciated. It is true that China’s immense economic size, number one in the world by some measures, is widely recognised. It is also the case that the gradual opening of the Chinese financial markets is likely to provide opportunities for foreign investors. But these are only parts of what is a much bigger story.
Few fully grasp that the rise of China is a global phenomenon rather than just national or regional. Even if the Chinese markets were entirely closed to foreign investors it would still be an important part of the world’s investment landscape.
Take the increasingly prevalent trend towards negative bond yields in Europe as an example. These are generally understood, quite reasonably, in relation to developments within the region itself. Sometimes the discussion stretches to the impact of the US Federal Reserve on global fixed income. Yet relatively few appreciate that substantial capital flight from China could also be playing a significant role in pushing down yields.
The recent bouts of global stockmarket volatility provide another striking example. Relatively few non-Chinese investors invest in China so the direct impact overseas is likely to be minimal. But fears over slowing economic growth in China have an immense impact on a world that has become highly dependent on Chinese economic expansion.
If China had not grown so rapidly since its reform process started in the late 1970s the world would be a much poorer place. China’s rise to the position of workshop of the world has meant that manufactured goods are much cheaper and more plentiful than they otherwise would be. Huge purchases by China of US Treasuries have also buoyed US consumption and financial markets.
It is impossible to prove the counterfactual – to show what the world would have looked like without China’s rapid rise – but it is overwhelmingly likely it would be a much less prosperous place. The odds are also that it would be more unstable.
Those who simply see China in the narrow terms of local investment opportunities are making monkeys of themselves.