Summary of Key Points
Amidst increasing global economic uncertainties (such as energy shocks, trade barriers, and geopolitical conflicts), Chinese assets are becoming highly sought after by international capital due to China's economic resilience, potential market openness, and advantages in the technology industry. Capital markets in Eurasia are strengthening their connections through cooperation among exchanges (for example, the cross-listing initiative between Malaysia and the Hong Kong Stock Exchange). Foreign investors are optimistic about the long-term investment value of RMB-denominated assets, particularly those in sectors representing new drivers of growth in the A-share market. However, China also needs to address challenges such as weak domestic demand and a sluggish real estate sector, while improving the listing ecosystem for technology companies and its financial infrastructure to continue attracting international capital.
I. What Supports China's Economic Resilience?
Zhu Feng, Chief Economist for JPMorgan Chase in China, believes that China's economic resilience is largely based on two key factors:
1. Strong Energy Resilience: China has a high degree of self-sufficiency in coal and is rapidly developing renewable energy sources (solar and wind power), reducing its dependence on external energy supplies. Even if international oil prices rise, the country can maintain stable energy supply and avoid economic setbacks like those experienced by Europe.
2. A Solid Manufacturing Base: China boasts one of the most complete industrial chains in the world, covering a range of products from low-end manufacturing (clothing, toys) to high-end manufacturing (new energy vehicles, semiconductors). For instance, China produces more than half of the global output of new energy vehicles and leads in exports, which helps the manufacturing sector withstand external trade tensions.
However, there are also weaknesses: domestic demand (consumer and corporate investment) is recovering slowly, and the real estate market has not fully recovered. These issues are similar to those faced by Japan in the past and are difficult to resolve in the short term, but overall, China's economic resilience remains strong.
II. Why Do International Investors Prefer Chinese Assets More and More?
Several experts agree on three main reasons:
1. The RMB's Resistance to Devaluation: The RMB has reversed its depreciation trend since last year. During recent conflicts in the Middle East, while the US dollar strengthened and currencies in Japan and South Korea depreciated, the RMB remained stable. Global investors look for currency stability when diversifying their portfolios, and the RMB's resilience provides them with peace of mind.
2. New Opportunities in the A-share Market: sectors representing new drivers of growth (such as AI, high-end manufacturing, and low-altitude economy) are performing well in the A-share market. Gan Tian, General Manager of Huaxia Fund Hong Kong, is optimistic about the A-share market over the next 2-3 years, as these areas align with China's industrial upgrading efforts and offer potential for growth.
3. China as a Safe Haven: With numerous geopolitical conflicts around the world, investors seek safe investment destinations. Chinese assets are considered stable, and the A-share market is less prone to sharp fluctuations compared to some emerging markets, making it an attractive option for risk-averse investors.
III. How Are Capital Markets in Eurasia Working Together?
Countries in Eurasia are seeking to expand their capital markets through cooperation:
- Malaysia's Goals: The Malaysian Stock Exchange aims to grow its market size to RM5.8-6.3 trillion by 2030 and has already signed a memorandum of understanding with the Hong Kong Stock Exchange to promote cross-listing of companies and ETFs. They also plan to involve the Shanghai and Shenzhen stock exchanges to enhance regional cooperation.
- Shanghai's Open Approach: The Shanghai Stock Exchange is committed to international collaboration to foster the prosperity of capital markets worldwide. The Shanghai Municipal Financial Office encourages international investors to participate actively in building Shanghai into a global financial center.
In essence, all parties are seeking to leverage each other's strengths: Eurasian countries want to tap into China's market, while China aims to enhance its international influence through cooperation.
IV. Challenges Faced by Technology Companies in Listing
Many technology companies wish to list on the A-share or Hong Kong stock markets, but Chen Sijie (Partner at KPMG) identifies two common issues:
1. Lack of Financial Internal Control: Tech companies often focus on research and development and business operations, neglecting financial management. This can lead to compliance issues during the listing process, requiring significant time and effort to address.
2. Strict Regulatory Requirements: Although the listing criteria are relatively low, the review process is thorough, involving additional documentation and responses to regulatory questions (such as tax compliance and research and development cost accounting).
Solutions include:
- Seeking professional assistance from accountants and lawyers in advance to establish proper financial systems and internal controls.
- Establishing clear policies for research and development expenses, including how to allocate costs and evaluate their effectiveness, to meet regulatory requirements.
V. How to Make Chinese Assets More Attractive to Foreign Investors?
Chen Sijie suggests several ways to improve the attractiveness of Chinese assets:
1. Upgrading Financial Infrastructure: The expansion of cross-border use of digital RMB and the adoption of the CIPS (Cross-Border Interbank Payment System) make it easier and more cost-effective for foreign investors to invest in China.
2. Green and Digital Finance: These areas are favored by international capital. China's green bonds and digital economy-related companies can attract investment from those interested in ESG (Environmental, Social, and Governance) criteria.
3. Multi-Dimensional Improvements:** In addition to the payment system, improvements in regulatory policies (aligning with international standards), public services (facilitating foreign investors' operations), and new business models (such as AI and blockchain applications) can create a more favorable investment environment in China.
In summary, Chinese assets are becoming increasingly attractive. To sustain foreign investment, China needs to address its weaknesses and improve its financial and technological ecosystems. For individual investors, focusing on sectors representing new growth drivers in the A-share market and the long-term value of RMB-denominated assets can be beneficial.