When the Obama administration is launching a broad push for action on financial regulatory reform China is making a big leap towards changing its financial structure of its economy. They have planned to bring new reforms which will crown their financial market to new heights.
In other words it can be termed that when the West is struggling to develop strategies to curb and impose restriction on its financial market China have decided to make most of the opportunity of the Closed Doors of US financial system.
China has decided to bring the following changes in the financial market in 2010 are:
Launching an International Board on theØ Shanghai Stock Exchange (SSE) and expanding a platform to facilitate the trading of complex derivatives, including ETF products.
This platform will increase the huge cheapØ money that constantly flows from other economies to Emerging Economies. This platform of China will attract more opportunities where return on investments will be high.
The Exchange Trade funds will be the mostØ lucrative for generating return as till now in 2009 US have injected 26 billion into emerging-markets funds so far this year. Of that, $15 billion came in through exchange-traded funds. So China will be the next hot destination for pulling of large funds.
The launch of the derivatives platform willØ also enable the launch of futures products based on exchange rates, interest rates, stocks and bonds in coming years. This will give boost to the opportunity that will take birth in 2010 out of the rising inflation. This rising inflation will make interest rates swap to play a vital role and China has taken the first step to reap the profit out of it. Also once the interest rates increases bonds derivatives will play a huge profit making opportunity.
The biggest reason behind all these reformsØ is China’s financial system is already flooded with cash from a record $1.27 trillion in new lending this year, the trade surplus, foreign direct investment, and inflows of speculative capital, or so-called hot money, adding to the risk of bubbles in stocks and property.
These new reform will pull out the funds fromØ these economic sensitive sectors to the financial market sector.
But the most important twist of the reform that will be keenly watched that is how the Chinese governments will handle such a huge amount of liquidity once it comes to financial sector.
The modernization of China’s financial sector and development of efficient capital markets will help China realize its goals of achieving long-term, sustainable, and balanced development. These reforms will make China to attract more liquidity.
If the Chinese bubble burst from all corners then Asian economies particularly the Emerging Asian Economies will be the most severely affected.
At the same time it can be said that the in the future the next threat of financial crisis will come from China. And even if it happens then it will simply eliminate the Asian economies particularly the emerging economies of Asia.
Author:- Indranil Sen Gupta
Financial, Economic Writer and Research Analyst
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