China And Wall Street – Decoupling Or Linking?

For at least three decades, under both Republican and Democratic administrations, the United States has urged China to open up its financial markets to foreign capital and foreign financial firms. However, as part of a broader strategy to decouple relationships with China, President Donald Trump’s administration appears to want global financial firms to pull back from China.

This policy reversal comes at a time when China has recently made sweeping reforms to liberalize its financial market, including removing ownership on foreign financial services companies operating in China and allowing MasterCard and PayPal to enter its payment industry and Blackrock to sell its own mutual funds in China. Under President Xi Jinping, China is pressing forward with a “linking” strategy to develop increased connections with foreign financial companies. China wishes to attract increased capital inflows and to develop their bond, pensions, and insurance markets. Chinese policymakers see benefits from having domestic financial firms gain greater exposure to major Western firms. US financial firms and US investors are clearly demonstrating that they support closer, mutually beneficial relations between the US and Chinese financial markets.

The tension between the incompatible objectives of “decoupling” and “linking”, voiced in public statements made by the leaders of the world’s two largest economies, leads to fears that a financial and capital market estrangement is developing that will have negative effects for both nations. Increased competition between Wall Street, Chinese, and other financial centers is to be expected and welcomed. Developments to date, however, suggest that the two countries may avoid seeing financial relations deteriorate to the extent that relations in trade and technology have. The substantial mutual benefits to the US and China and to global financial stability from avoiding such a breakdown in relations must be apparent to policy officials.

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Disclaimer: The preceding was provided by Cumberland Advisors, Home Office: One Sarasota Tower, 2 N. Tamiami Trail, Suite 303, Sarasota, FL 34236; New Jersey Office: 614 Landis Ave, Vineland, NJ ...

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