U.S. China deal is a massive investor wake-up call
Trade relations between the United States and China have just been given a considerable boost following last week’s agreement between the two nations which allows U.S. regulators to inspect the audits of Chinese firms whose stocks are traded on U.S. exchanges.
In a lengthy dispute, U.S. regulators had pledged to eliminate Chinese companies from U.S.-based stock exchanges if China doesn’t permit inspections.
To my mind, this tentative agreement is certainly positive news. It’s a huge step in the right direction towards more amiable relations between the world’s two largest economies.
As I was quoted by Mena FN and Korea Times, amongst other media, the timing of the agreement is also positive as the two countries are still attempting to recover from the trade rifts stemming from when Trump was president. And at a time when tensions between the U.S. and China have been mounting over the war in Ukraine, China’s human rights record, and U.S. House Speaker Nancy Pelosi’s recent trip to Taiwan, which China claims as its territory.
I believe there are three key aspects to this agreement, which tries to end a decade-long dispute between the two nations.
First, China wants to be a major player within the global trade and financial community, and this agreement is a nod to globalisation, which is what is very much needed now to boost global economic growth and tackle the worldwide cost of living crisis.
Second, efforts must now be made to use the power of global trade not just for economic superiority, but for peace where it is threatened around Taiwan. If trade relations improve, the hot political and military heads can be cooled.
And third, last week’s agreement should act as a screaming wake-up call for global investors. Over the past few months, we’ve seen a number of investors spurning the world’s second-largest economy. Around US$300 billion could exit the country in 2022, over twice as much as last year’s outflow of $129 billion, according to forecasts by the Washington-based Institute of International Finance.
Unpredictable regulatory crackdowns, Beijing’s zero-Covid policy and China’s jittery real estate sector are just some of the factors cited by investors for pulling out. Yet I believe they should look at the bigger picture on China, in order to boost their capital growth.
As China shifts from an export economy to a consumption one, that, in the long run, will be more sustainable. Furthermore, as the country moves up the value chain, it is obtaining an increasing number of foreign brands, market networks and technologies that will further reinforce its position for global investors.
The potential for growth is still huge, as the country’s urbanisation strategy is still in its infancy and the scope is immense. Additionally, the reform of state-owned businesses could create major investment opportunities.
Officials will also likely implement broader stimulus packages to offset the worst impact of Covid lockdowns and other restrictions.
Consequently, as this new agreement could see U.S. inspectors complete audit work papers of Chinese companies with no edits, this is huge news for investors. So, those who want to boost their long-term wealth should certainly keep an open mind on the opportunities in China.