Stuart Gulliver: China's measured reform

HSBC's chief executive writes for FinanceAsia's 20th anniversary issue on how the workshop of the world is becoming China’s Silicon Delta.

I was fortunate enough to feature in the first edition of FinanceAsia in 1996. At the time, I was in Hong Kong, building out our recently-formed HSBC Markets business in Asia, and flying regularly to Beijing to meet with officials as China’s reform process gained momentum. Two years later, I found myself working closely with the Hong Kong Monetary Authority and central banks around the region to stabilise markets and currencies as the Asian financial crisis erupted.

China’s relatively closed economy and financial system shielded it from the turmoil, but officials had a ringside seat for the events unfolding around them. Across Asia, they saw emerging markets with floating currencies, open capital accounts and substantial external debt. This formula had supported rapid growth for several years. But, as capital flows began to reverse, Asian currencies collapsed and issuers lost access to capital markets as they began to default on US dollar obligations. The impact on real economies was huge.

Since Deng Xiaoping initiated the strategy of reform and opening up in 1978, Chinese policymakers had been exploring the potential of markets to deliver prosperity. This would continue, but in 1998 they saw that adhering to the “Washington Consensus” of liberal free market economics for developing countries could allow the financial sector to wreak havoc in the real economy – and they decided to pursue a different path.

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Instead, China’s policymakers have taken a measured, gradual approach to liberalisation – leading many observers to cite the Chinese proverb about “crossing the river by feeling the stones.” This pragmatic approach has transformed the country’s economy and markets during the past two decades. The development of the special economic zone in Shenzhen was the catalyst for vast private sector investment from Hong Kong and beyond, enabling China to become the “workshop of the world” and launching it on a spectacular growth trajectory.


1998 also made clear to China that internationalising its currency and mobilising its domestic capital markets would make it more resilient in a world dominated by the US dollar. Policymakers understood that allowing greater use of renminbi in trade and investment could, over time, increase China’s worldwide influence, and that more efficient local markets would be essential for recycling savings into investment.

While China’s domestic bond markets were barely open in the 1990s, I asked the HSBC Markets team to study them intensively and track their development. One of the people who worked on this is now the CEO-designate for our securities joint-venture, which is awaiting regulatory approvals. This is the culmination of a long association with China’s domestic capital markets for her and HSBC. When the interbank bond market became more open to foreign banks in the early 2000s, we were ready to be a leader.

From the mid-1990s, China-linked issuers were also beginning to appear in the global debt capital markets (DCM) and we were building up our DCM team in Hong Kong. I remember our first international deal for a China-related issuer, CITIC Pacific, in 1994. Even though CITIC Pacific was not an onshore business, it was seen as China-driven and we had to work hard to explain the credit to investors. Today, Chinese credits are somewhat more familiar to the market: Chinese borrowers accounted for 54% of Asia ex-Japan G3 issuance last year.

Also in the mid-1990s, Chinese institutions were beginning to make their presence felt in global financial markets as they invested the nation’s growing current account surplus, especially in US Treasuries. I wanted to make sure we were the first to bring them intelligence about global markets, so we started the annual Asian Outlook events in Beijing in 1994 and Shanghai in 1996. We’re still holding these events today.

Some 20 years after the Asian financial crisis, China’s currency was ready to go global. Trade settlement in renminbi began to gain momentum and the birth of the offshore renminbi bond (dim sum) market in Hong Kong was a critical moment. I was particularly proud that HSBC was the first issuer to bring an offshore renminbi deal to London in 2012.

Today, China is more accessible to international investors – and even issuers – than ever before. China’s credit, rates and foreign exchange markets are increasingly liberalised. Corporate bond defaults – once unimaginable – are beginning to become accepted by the market. While defaults can always cause concern, I believe this is a healthy development that will benefit the market and credit pricing in the long term. China is also making real progress in liberalising its exchange rate mechanism.


When I used to fly out of Hong Kong’s Kai Tak Airport to Beijing in the 1990s, I would watch the lights disappear when we started to travel over Mainland China and there would be more bicycles than cars in the streets when you arrived. The rise in China’s prosperity since then is incredible.

However, the export-led model which served China so well in the years before the global financial crisis is no longer quite so robust: world trade growth is a lot weaker than it once was and the renminbi has appreciated rapidly as other countries and regions have pursued quantitative easing and negative interest rates.

The pivot towards domestically led growth has also not been without its problems. Not all investments have delivered acceptable returns while, for the economy as a whole, debt has risen quickly. And, with growth still high by global standards, China has understandable worries about environmental degradation.

But, I believe China can manage the shift to a higher-value economy by adopting the same pragmatic combination of market-based reforms and state direction as in the past. The Pearl River Delta offers China a vision for the future in this respect. Through initiatives such as free trade zones and the Closer Economic Partnership Arrangement with Hong Kong, policymakers have created a fertile environment for innovation, technology, service industries and private sector job creation. The workshop of the world is becoming China’s Silicon Delta.

I am as excited about the future of China today as I was 20 years ago. Continued urbanisation and the shift of financing from bank lending to capital markets will create huge opportunities for the financial sector. So will the growth of domestic equity markets, the development of sustainable financing, the stellar growth in outbound investment and the Belt and Road initiative.

But, although China’s economic model and markets may change, I am confident that its commitment to measured reform will not. 

Stuart Gulliver joined HSBC in 1980 and has held a number of key roles in the group’s operations worldwide, including postings in London, Hong Kong, Tokyo, Kuala Lumpur and the United Arab Emirates

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