Foreign investors have been investing in China since the early 2000s to take advantage of China’s economic growth and increasingly available assets and derivatives. This report outlines the key aspects of the market that foreign investors investing in China should understand, including the overall market trends, important asset classes, regulators, regulations, technology and connectivity in China.
Since the Reform and Opening up which started in the late 1970s, China has been on a path of incredible economic development. However, after the global financial crisis in 2008, China’s economy started to slow, as did the double-digit GDP growth. China is now facing some economic challenges including a potential asset bubble, GDP growth which is now around 7%, a rapidly developing banking industry, lack of SME funding, and a stock market that might struggle to meet expectations. In general, China needs to continue to reform in order to build a more sustainable and global financial industry and overcome the near term challenges.
The Chinese government’s focus on the financial industry has ushered in a decade of nearly constant reform and opening up of the financial industry. From foreign banks being allowed to enter China in the early 2000s to the launch of stock options and crude oil futures in 2015, the government has pushed the financial industry through a consistent and pragmatic path of reform. The culmination of this has been the Hong Kong Shanghai connect, or Mutual Market Access program, which is seen by many as the final step before the government fully opens capital markets by allowing nearly open capital markets.
In the meantime however, this path of pragmatic reform still has a few steps remaining and will continue as the government walks a very fine line between open and closed markets, while continually ensuring growth. It is a difficult challenge.
This is all underpinned by the Chinese Yuan, which, as part of its continuing internationalization, will be an important part of global trade in the future and increasingly the underlying currency of investment in markets around the world.
With this background of overall government-lead transformations including urbanization, industry structure upgrade and globalization, there will be significant capital market opportunities for both domestic and foreign investors in mainland markets.