China and the US build bridges in financial services

A day after US president Donald Trump announced a new initiative to thwart Beijing’s alleged efforts to “steal” US technology, senior Chinese financial officials and Wall Street bankers sat down for a teleconference.

One participant in the China-US Financial Roundtable, established two years ago at a time of heightened trade tensions between the world’s two biggest economies, said it had been a pretty “generic” forum aimed at “fostering goodwill” and enhancing financial integration between the world’s two largest economies.

But the forum, which convened on October 16 according to four people briefed on the discussions, also highlights a rare positive front in Sino-US relations: finance, as Beijing attempts to speed up market reforms and attract foreign capital.

Over the first eight months of this year, the amount of Chinese onshore bonds held by foreign institutional investors increased more than 20 per cent year on year to Rmb2.8tn ($421bn), according to Fitch Ratings. Foreign investors have accounted for about 12 per cent of all purchases of Chinese government and policy bank bonds this year, according to Refinitiv. 

Separately, Wall Street groups including BlackRock, Citigroup and JPMorgan Chase have each been given approval to expand their businesses in China over recent months.

The increased financial flows and regulatory approvals have coincided with loose central bank policies elsewhere, pushing the bond yields that underpin global portfolio allocations to historic lows. The 10-year yield on Chinese government bonds is 3.18 per cent compared with 0.8 per cent in the US.

“Money is starting to pour into China because they’re looking for that income,” said Hayden Briscoe, head of fixed income for Asia Pacific at UBS Asset Management. “It’s a really interesting point in history — the Chinese have opened up and you’ve got the rest of the world in dire straits.”

“Economic imperatives are certainly overriding political concerns,” added Eswar Prasad, an expert on China’s financial system at Cornell University. “Ultimately, private capital and private financial institutions are going to respond more to economic incentives irrespective of what political masters say.”

Industry executives say Beijing is partly motivated by geopolitical concerns. “China wants to pre-empt possible US financial sanctions in the context of worsening relations,” said a China-based executive at a large global fund manager. “That is why you see a flurry of opening up right now. If you integrate into global financial markets and accelerate coupling by opening to foreign players, then you reduce US leverage.”

The executive added that the more business Wall Street does in China, the more incentive the US investment banking industry would have to lobby the Trump administration to dial down tensions with Beijing.

Wall Street organisations that have participated in the forum since September 2018 include Blackstone, Citadel, Fidelity, Goldman Sachs, JPMorgan and Morgan Stanley. The session held two weeks ago was originally…