The centre of the world is China

Stephen Bird at Citi questions how long it will be before the world's leading financial centre is in Asia.
Stephen Bird
Stephen Bird

Forecasters spend more time pondering China's future than probably any other market on earth. When will it become the world's largest consumer market? By 2015. When will it become the world's largest investor in research and development? By 2025. And then eventually it will become the world's largest economy by 2035.  

These are significant milestones on China's path but it's the trajectory of growth and economic development that rightly attracts all the attention. However, turning to the China of today rather than tomorrow, China can already lay claim to being one of the world's leading capital markets -- if not in fact its most important market.

China's stock market capitalisation passed that of Japan's earlier this year, topping $3 trillion, making it the world's second-largest stock market. It could surpass the US within the next five years. Local bond issues in China regularly hit in excess of $1 billion equivalent and it is now the world's largest domestic bond market for corporate and financial issuance.

Chinese issuers raised the most from IPOs in 2009 -- nearly $30 billion -- which is three times the volume from the US. Given the liquidity in the region, these initial public offerings are increasingly listed in Hong Kong and Shanghai.

The pools of capital in the East mean more and more global issuers are now also roadshowing through Asia. It won't be long before we see international companies listing in China given the capital raising opportunities. During the past five years, eight out of the world's 15 largest IPOs have come from China -- and the three most recent have all listed in Asia.

But it's not just IPOs. Chinese companies have also burst onto the global M&A scene in what is only the beginning of a powerful, long-term trend. In 2009, China was the second most acquisitive nation globally, investing a total of close to $150 billion, up slightly over the same period in 2008.

There are many factors driving this expansion -- the obvious being China's search for natural resources. Other drivers are the desire to acquire new technologies; new customer bases and increasingly brands, which are critical to China's rise.

China's financial markets are also increasingly integrated with the rest of the region, notably Greater China, as underlined by the recent local currency bond issues in Hong Kong. Greater China is increasingly the growth engine for the rest of Asia, and eventually the world, in years to come. 

This group already has a significant impact on Asia-Pacific and the world's economy overall -- Greater China represents more than a third of gross domestic product in Asia. Intra-Greater China trade flows now top $500 billion and represent more than a quarter of total intra-Asia trade. It represents 13% of foreign direct investment in the world.

Further economic integration will only create greater opportunities -- China and Hong Kong already enjoy close ties through CEPA (Closer Economic Partnership Arrangement). And in the past 18 months, we've seen a dramatic improvement in cross-strait relations, which has resulted in nine agreements largely around air travel rights. Future discussions focus on the opening up of manufacturing and infrastructure sectors and the development of capital markets and the hugely important peace accord or "non-hostilities" agreement. As this continues, Greater China's influence in the world can only continue to grow. As the world moves East, many milestones are crossed but it's the positive attitude and inspiring growth mentality to treat these milestones as mere stepping stones that drives this overall trajectory. 

Stephen Bird is CEO for Asia-Pacific at Citi.

¬ Haymarket Media Limited. All rights reserved.

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