China’s opening markets
China (ASHR) (FXI) is in the midst of opening its markets to global investors while encouraging local investments abroad. China’s economy is also growing in accessibility to investors. Beijing continues to explore avenues to open its capital account to offshore investors, and its toolkit of financial instruments available to investors in China just keeps growing.
In another development, the MAS (Monetary Authority of Singapore) announced on June 23 that will include yuan investments in its official foreign exchange reserves starting on July 1, 2016, even though the MSCI denied the inclusion of China A-shares in its EMI (Emerging Market Index).
Meanwhile, the IMF (International Monetary Fund) has approved the yuan to be in the Special Drawing Rights basket from October 2016. This is a positive sign for China because this inclusion may help China gain higher currency demand from the global economy.
As China’s demographic profile evolves, it will likely offer tremendous new opportunities. The forces behind the transformation include the following:
- the rise of upper-middle-class and affluent households as the drivers of consumption growth
- a new generation of freer-spending and sophisticated consumers
- the increasingly powerful role of e-commerce
- increasing numbers of students and graduates
- an aging population, which can be instrumental in generating growing demand for new market sectors
Thus, there are immense opportunities in the service sector in China—particularly in retail, healthcare, and technology.
Changes in financial reforms
The PBoC (People’s Bank of China) has also pledged to implement a prudent monetary policy that is consistent, stable, and forward looking. China’s authorities are committed to inducing domestic consumption, shrinking its trade balance, and reducing its dependence on exports. The PBoC has also committed to optimizing financing and credit structures to help foster the rebalancing process as well as control inflation so that China can become more competitive with other emerging market economies.
China is too big to fail
That said, China is still in the middle of a bumpy economic transition. China has stuck many new investment agreements with other nations in the Asia, Europe, Africa, and the Middle East, which raise optimism about a recovery in the Chinese economy.
But Beijing’s trade and investment ties are being strengthened and upgraded with the Koreas, Vietnam, Laos, and Indonesia. Beijing is actively promoting its Belt and Road Initiative with the Arab world. Egypt seems particularly interested in promoting trade and investment ties with China, and Morocco has even granted a visa-free access to Chinese nationals in a bid to increase its trade and investment projects with China.
For more updates and analysis on China, keep checking in with Market Realist.