Can China Gain from Wall Street's Fumbles?
October 2, 2008
It doesn't take an economic genius to see the way that the U.S. financial markets impact the global economy. The recent collapses of several esteemed financial institutions has sent shockwaves worldwide.
Beyond the issues of how various international firms and governments are altering their investments, and seizing on the opportunity to profit from this situation remains the looming question of whether or not Wall Street's prominence will remain.
One Chinese investment manager told The Washington Post, that China's rise to become the world financial leader "is inevitable." Various factors, including the high levels of foreign direct investment, venture capital, and tremendous economic expansion contribute to this optimism.
The Shanghai stock index has remained fairly stable in response to the situation in the U.S. Hong Kong and Shanghai even experienced small gains on September 30, starkly contrasting the Dow's precipitous 7% drop. The continued growth of China’s economy, improved infrastructure, and opportunities for jobs might also attract talent from a wounded Wall Street.
On the other hand, China has not been immune from economic downturn and uncertainty. The Shanghai stock market hasn't had its best year, either, dropping 60% since January, versus the Dow's 20% drop in 2008. Furthermore, it's impossible to separate China's financial interests from those of the U.S.
China is the second largest holder of U.S. treasury bonds, owning $518.7 billion. Beyond this investment, Chinese companies have billions of investments in U.S. corporations, so a U.S. financial crisis could negatively influence Chinese investments.
While China's markets haven't experienced the same type of beating as the U.S. ones have recently, the slowdown of the U.S. economy has also negatively impacted many Chinese industries that depend on revenue from exports.
Granted, much of China's economy can be separated from the U.S., and there are plenty of opportunities for upward mobility within China's markets. Despite China's various economic challenges, the potential for continued expansion remains tremendous.
Even in the context of these types of opportunities, and even with Wall Street's faltering, Shanghai probably won't replace New York any time soon. But in the long run, I wouldn't discount the idea completely.
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