Beijing’s firm hand faces testing times
The Chinese authorities are increasingly flexing their financial muscles to control inflation, but a number of external challenges cloud the horizon
Visitors entering the offices of major private banking offices in Hong Kong’s bustling ‘Central’ district are in for a rude awakening. Inside they are given the spiel of how high net worth customers are presented with a “perfect combination” of assets and products, by the best managers acquired in Asia’s “war for talent”, through an “integrated model” of wealth management, funds and investment banking.
Outside, they see daily demonstrations from angry and dissatisfied customers – not given a clear explanation of the structured products they were sold – who suffered substantial losses following the Lehman Brothers collapse. Western managers’ claims that the financial crisis did not bite in Asia are clearly disproved when speaking to the wronged investors. These very vocal high net worth customers are further provoked by the sinister presence of Chinese government agents, lurking among the more familiar uniformed Hong Kong police.
Whereas China is allowing its still recently acquired southern territory of Hong Kong to prosper with some autonomy, there have been recent signals sent from Beijing to any doubters as to where the power really lies. Hastily enforced regulations about property speculation have severely curtailed Hong Kong’s ritual weekend exchanges of apartments favoured by real estate-loving investors.
Inflation concerns
Inflation is now the number one worry among Chinese officials, facing regular regional protests about rising food prices. The government is clearly concerned that this does not lead to wider unrest, bearing in mind the student protests which led to its brutal crackdown in 1989 started with similar demonstrations.
Chinese authorities, keen to avoid the scenes of dissent regularly occurring outside Hong Kong’s banks, are reluctant to speed up the expansion of financial instruments such as derivatives in a growing, but highly restricted financial services industry.
Powerful City councils are funding business schools, including the Shanghai Advanced Institute of Finance, so that Chinese practitioners know what they are doing when advising private and institutional clients. Consequently Chinese graduates are increasingly entering home-grown banks, rather than the foreign institutions which dominated in recent times.
This meticulous planning of the economy, for which the Chinese are famed, will soon face external as well as internal pressures. Private banks, fund houses and custodians, despite reporting preference for locally managed assets, point to increasing flows of Asian money to the US, in what could be the anticipation of a major American recovery.
But the greatest fear – and opportunity among financiers in China, Hong Kong and Singapore – is clearly competition from nearby, highly democratised yet poorer India, which has huge ambitions to challenge and emulate its Eastern neighbour.
