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China's financial integration will trigger fundamental changes in global economy
Despite its gigantic production capacity and trade links with the rest of the world, China’s financial sector lacks depth and has little connectivity with the international financial system.
A new report, Shifting Capital: The Rise of Financial Centres in Greater China, argues that China needs to develop a deeper and more diversified financial sector that reflects the size and the international integration of its real economy to ensure the efficient allocation of capital. Yet building efficient financial systems in China and modern financial centres in Greater China will be riddled with challenges and obstacles.
The report focuses on the steps that China is taking to reform its financial services sector through the incremental development of financial centres in the Greater China region. The report takes a broad regional approach, looking at four key international financial centres (IFCs), namely Shanghai, Taipei, Shenzhen and Hong Kong.
The development of these four IFCs provides a picture of the complex evolution of China’s financial reform, which is a policy-driven process where political considerations directly interact with market forces.
If all goes to plan, China will eventually emerge on the international scene as a major financial power and the issuer of one of the key reserve currencies within a multi-currency international system. This will correct the fundamental problem that currently afflicts the international economic and monetary system – where the world’s second largest economy and the first exporter is managing its exchange rate, resulting in a large current account surplus and a very large accumulation of foreign reserves.
One of the report’s authors, Paola Subacchi, says:
‘China’s financial integration will trigger fundamental changes in the global economy in the coming decades. What China is doing is critically important. It is also historically unprecedented. China has no roadmap or past experience to rely on. Indeed it is the first emerging country to seek a comprehensive reform and expansion of its financial services sector and to establish a truly international currency.’
Notes to Editors
Read the report's key Policy Recommendations.
Read Shifting Capital: The Rise of Financial Centres in Greater China, by Paola Subacchi, Helena Huang, Alberta Molajoni and Richard Varghese.
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