In World Economy News 21/04/2015
For a raw display of China’s financial prowess, all you have to do is visit the heart of Shanghai’s financial centre.
Coming out of the Lujiazui subway station, you can take an escalator up to an elevated footbridge that encircles a gigantic roundabout and links the iconic Oriental Pearl Tower and skyscrapers such as the Shanghai World Financial Centre and Jin Mao Tower – among the world’s tallest buildings.
Part of the footbridge had not been completed when I was there on a previous trip two years ago, and I was astounded by the developments that have taken place since then.
Walking the whole length of the bridge this time, I could sense the grandeur of a huge financial centre taking shape, with names such as the Agricultural Bank of China and China Construction Bank dotting the skyscraper landscape.
The area is also paved with so many upmarket restaurants and stores with international luxury brand names that it could easily give other big Asian financial cities such as Tokyo and Hong Kong a run for their money.
It left me with a burning question: Is the financial media, dominated by Western news agencies which we rely on for most of our news on China’s economic developments, missing out on an important trend?
Just leafing through the financial pages of some British and United States newspapers last week would have left me with the impression that China was close to economic collapse – had I not known better from my recent visit there.
In one newspaper, I spotted gloomy headlines such as “Export slump stokes fears for China growth” and “Australia steeled for China slowdown”.
But the reality is that China stocks are on a roll and the Chinese economy is far from sputtering. This has propelled the Hong Kong market into a massive bull run, with the Hang Seng Index gaining 11 per cent in the past two weeks as billions of dollars from China were poured into mainland Chinese counters – known as H-shares – listed there.
It is easy to run out of superlatives in describing the gigantic impact this price surge has had on H-shares. ICBC, China’s largest lender, is now one of the world’s most valuable financial institutions, while Tencent Holdings, which owns the popular China social network WeChat, has a market cap of HK$1.47 trillion (S$255 billion), which makes it more valuable than British lending giant HSBC.
The sizzling run-up has lured many local investors into the Hong Kong market too, with brokers saying that their backroom operations are working over- time to clear the huge backlog of orders from their clients.
To explain the sudden bull run in Hong Kong, we have to turn to the Shanghai-Hong Kong Stock Connect link that was launched last November to allow foreign investors to buy stocks in the Shanghai stock market via Hong Kong.
More importantly, the scheme also allows mainland Chinese investors to bypass China’s strict capital controls and trade in Hong Kong stocks directly.
The scheme got off to a slow start initially, and I was puzzled enough to express my surprise in this column that such a major development was being largely ignored by investors.
This was because when the idea was first proposed in 2007, the Hong Kong and Singapore stock markets shot to record-high levels as traders salivated at the prospect of the potential tsunami of Chinese money flooding their markets.
That the bull run should take place in Hong Kong five months after the launch of the new link proved that my original hunch was correct. It is also not surprising to find China lending a hand, such as giving mainland funds the go-ahead to invest in Hong Kong stocks via the connection.
In hindsight, many investors missed the opportunity last year to snap up H-shares because they were distracted by the noisy demonstrations staged by a student-led movement known as Occupy Central in Hong Kong. A preoccupation with the anti-corruption campaign in China and the adverse impact this was having on the casino business in Macau also sapped their buying appetite.
With all that heat and noise, they might have missed an important development – the so-called Third Plenum, a four-day policy gathering of China’s top brass held 18 months ago to chart the country’s direction.
Using as a guide the 300 per cent jump made by the Shanghai stock market in the four years after Mr Hu Jintao and Mr Wen Jiabao took over the reins of power in 2003, I believed that the blueprint for economic reforms produced by their successors Xi Jinping and Li Keqiang would energise Chinese stocks in a similar manner.
The march in economic progress is not merely reflected in the stock market, but in ordinary people’s lives as well. On my latest trip, I visited Hongchun, a picturesque village about a six-hour drive from Shanghai.
The 900-year-old village looked exactly the same, with its quaint collection of old Ming dynasty-style buildings, the rolling fields of rapeseed flowers and fast-flowing creeks. But the villagers were visibly more prosperous, compared with my previous visit two years earlier.
Driver Xiao Jiang, who showed us around, said that he would be switching to a seven-seater vehicle to accommodate even more tourists, who are set to visit the village after the high-speed railway – an hour’s drive away – becomes operational in July.
As he and millions of his countrymen make their way to join China’s burgeoning middle class, they will want to have more of the good life – everything from a better car to quality healthcare. This will, in turn, provide scope for the Chinese stock market to rise further. The big rally in Hong Kong may just be a sign of even more prosperous times to come.
