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22-05-2014, 10:27 PM
China could hold 25pc of world shares: Parkinson
DAVID UREN THE AUSTRALIAN MAY 23, 2014 12:00AM
THE world should brace for an avalanche of Chinese investment that could leave it holding a quarter of the world’s shares by value in little more than a decade, Treasury chief Martin Parkinson says, adding that Australia is well positioned to benefit.
The amassing of China’s foreign exchange reserves, which now approach $4 trillion, is only the very start of its impact on world financial markets, the Treasury secretary told a forum on trade and investment with China in Hong Kong yesterday. It promised an “unprecedented reallocation of global financial assets”.
“Today, China accounts for around 11 per cent of both world trade and global GDP but only accounts for 3 per cent of gross holdings of overseas assets and liabilities globally,” he said.
That figure, which includes the foreign exchange reserves, could triple to $16 trillion, he said.
“Greater financial integration provides an opportunity for countries like Australia to benefit, with Australia a significant net importer of capital,” Dr Parkinson said, indicating that the flow of Chinese investment we have received to date was minor compared with what was ahead.
Although Chinese foreign investment in Australia remains controversial, particularly in resources, housing and agriculture, it has grown more than 14 times between 2005 and last year.
“But, at $32 billion, this represents only around 1 per cent of the total stock of foreign investment in Australia,” he said.
Dr Parkinson said the rise of China as a financial superpower was part of a broader shift of influence towards Asia, which could control as much as half the world’s financial assets by 2030.
He said further reforms in China, including a more flexible exchange rate and liberalisation of interest rate controls, were needed for its integration with world financial markets to fulfil its potential.
He said China faced risks ahead. “While China wants to introduce more market signals into its financial markets, it is also dealing with the legacy of a highly managed system with many distortions.”
“Financial system risks like excessive credit growth and shadow banking add a further layer of complexity,” he said.
However, Dr Parkinson said China’s greater financial integration would bring benefits to all countries in the region, helping the diversification of risk and sharing expertise.
“Bilaterally, there is also room to further develop our trade and investment with China.
“Australia is already China’s seventh-largest merchandise trading partner and a major destination for Chinese direct investment.
“So a deepening of financial ties with China will help expand trade and investment, and also do it more efficiently.”
Dr Parkinson said a small step was the growing use of China’s currency, the renminbi, to settle trades in the iron ore market, without the need to convert sales into, and then out of, American dollars.
“Australia’s position as a commodity producer does not mean we must live in a purely US dollar-dominated world of trade invoicing,” he said.
Dr Parkinson said Sydney was a “natural destination” for trade in renminbi, with representation for the five major Chinese banks, along with HSBC. He acknowledged that Sydney faced competition in this market from Singapore, Taipei and London.
DAVID UREN THE AUSTRALIAN MAY 23, 2014 12:00AM
THE world should brace for an avalanche of Chinese investment that could leave it holding a quarter of the world’s shares by value in little more than a decade, Treasury chief Martin Parkinson says, adding that Australia is well positioned to benefit.
The amassing of China’s foreign exchange reserves, which now approach $4 trillion, is only the very start of its impact on world financial markets, the Treasury secretary told a forum on trade and investment with China in Hong Kong yesterday. It promised an “unprecedented reallocation of global financial assets”.
“Today, China accounts for around 11 per cent of both world trade and global GDP but only accounts for 3 per cent of gross holdings of overseas assets and liabilities globally,” he said.
That figure, which includes the foreign exchange reserves, could triple to $16 trillion, he said.
“Greater financial integration provides an opportunity for countries like Australia to benefit, with Australia a significant net importer of capital,” Dr Parkinson said, indicating that the flow of Chinese investment we have received to date was minor compared with what was ahead.
Although Chinese foreign investment in Australia remains controversial, particularly in resources, housing and agriculture, it has grown more than 14 times between 2005 and last year.
“But, at $32 billion, this represents only around 1 per cent of the total stock of foreign investment in Australia,” he said.
Dr Parkinson said the rise of China as a financial superpower was part of a broader shift of influence towards Asia, which could control as much as half the world’s financial assets by 2030.
He said further reforms in China, including a more flexible exchange rate and liberalisation of interest rate controls, were needed for its integration with world financial markets to fulfil its potential.
He said China faced risks ahead. “While China wants to introduce more market signals into its financial markets, it is also dealing with the legacy of a highly managed system with many distortions.”
“Financial system risks like excessive credit growth and shadow banking add a further layer of complexity,” he said.
However, Dr Parkinson said China’s greater financial integration would bring benefits to all countries in the region, helping the diversification of risk and sharing expertise.
“Bilaterally, there is also room to further develop our trade and investment with China.
“Australia is already China’s seventh-largest merchandise trading partner and a major destination for Chinese direct investment.
“So a deepening of financial ties with China will help expand trade and investment, and also do it more efficiently.”
Dr Parkinson said a small step was the growing use of China’s currency, the renminbi, to settle trades in the iron ore market, without the need to convert sales into, and then out of, American dollars.
“Australia’s position as a commodity producer does not mean we must live in a purely US dollar-dominated world of trade invoicing,” he said.
Dr Parkinson said Sydney was a “natural destination” for trade in renminbi, with representation for the five major Chinese banks, along with HSBC. He acknowledged that Sydney faced competition in this market from Singapore, Taipei and London.