Growing Pains

If the anticipated population growth of China’s capital, Beijing, is any indication of future prospects in the country then US investment banks Credit Suisse and Morgan Stanley will be smiling this week.

The two groups have secured tie-ups with Chinese securities firms in moves that position them well for underwriting IPOs and trading shares on the mainland when the Government relaxes its current block.

For the past two years foreign entities have been forbidden from participating in what would have been a clearly lucrative market given the performance of Chinese equities during the period and bounty of major new listings.

US Government officials were in town last week pushing China to take more responsibility for global growth from a consumption point of view and not just export.

A greater exposure to the market is clearly a growth focus of the large US investment banks, given the slowing of many of their traditional markets.

It is believed a handful of other major US investment banks are also currently in China courting potential partners ahead of Beijing taking a more relaxed attitude to the role of foreign capital market players.

Meanwhile in terms of long term growth, the continued urbanisation of millions of Chinese is expected to fuel economic growth for many years – barring an economic meltdown of course.

Over the weekend the future growth of China was further reinforced, at least in its most developed areas, with estimations Beijing would swell to 21.4 million people by 2020 – more than 4 million people than present.

Combined with the surrounding Tianjin Municipality and the large Hebei Province the area is likely to be home to twice the population of the whole of the UK – around 115 million people.

In further evidence China is starting to yield to some of the endless US Government lobbying, the Chinese State Administration of Foreign Exchange provided an early Christmas gift for the 49 qualified foreign investors in China by increasing the quota they’re allowed from $10bn to $30bn.

The Christmas joy did not however extend to a softening of the Chinese Government’s position on exchange rates.

This means the US is going to have to wait for the time being until China is more confident it can be self sustaining enough to not implode in the event that its exports become less competitive.

On the one hand China and the world doesn’t want to see any more upward pressure on inflation, while one the other hand the Chinese Government doesn’t want to see tens of thousands of businesses struggling to export products, causing unemployment and creating a scary level of dissent among the masses.