China's Financial Liberalization

I have now been based in Hong Kong for two months, so I can begin to see more clearly what the goals and challenges in my first year are going to be.

One of my biggest challenges here is the perception of the global economy and uncertainty in the outcome of the European debt problem; and a second related issue is the fallout here in Asia of the MF Global collapse. Investors have suffered serious losses and have no certainty they will ever fully recover their investment. As the Chinese would say: “once you have been bitten by a snake, you are always scared of rope.”

A major priority for me this year is to raise the profile of NYSE Liffe here in Greater China. One way to do this is to enhance investor education by working together with Chinese financial institutions. For example, we organized a joint forum with the Chinese regulator State Administration of Foreign Exchange (SAFE) for qualified Chinese domestic institutions (QDII), at which some 60 QDIIs joined us for two days in Southern China. We provided a professional training program on how to use exchange traded derivatives to hedge financial risk.

Another goal is to improve our data coverage in the region. At the moment Chinese investors largely watch data screens domestically developed by Chinese data vendors, which have very limited international information. I know from my discussions with the QFIIs and QDIIs that there is a huge pent-up demand for overseas market data from Chinese investors, and until this gap has been filled, it would be very difficult to promote our products and services.

There’s a really interesting story doing the rounds in Beijing financial circles at the moment. Apparently senior Chinese governmental officials have decided that speeding up financial liberalization is now a major priority for China. The combination of debt problems in Europe and congressional gridlock in Washington last year persuaded China that it can’t continue to rely on exports to Europe and the USA as its major engine of economic growth. China has to rapidly develop its internal markets and internationalize its financial institutions.

There’s even talk of the Renminbi being fully convertible as early as 2015. Personally, I think that is a bit too ambitious, but there are signs that the authorities are introducing new economic reforms. UK Chancellor George Osborne has picked up on this, and announced plans to develop London as the major offshore trading center for the Renminbi. And only this week a very senior figure in Hong Kong said that she thought that the Renminbi will account for 50% of all Asian inter-regional trade by 2015, which would mean a massive increase from what it is today in only three years! Any major increased use of the Renminbi internationally would be very good news for NYSE Liffe because this would mean the Chinese could invest more easily in our markets.

On a personal note I spent part of the Chinese New year with my family in Harbin. Harbin is not far from Siberia and when I got off the plane at midday, the temperature was minus 27 degrees (that’s minus 16.6 degrees Fahrenheit for my American friends)! Quite a shock after Hong Kong’s tropical climate, but excellent for Harbin’s greatest artistic contribution to the world – its ice sculpture festival. Going around the exhibit at night was a fantastic experience and a great way to celebrate New Year!

In Chinese folklore the year of the dragon should mean a year of prosperity – let’s hope that’s true for all of us!