US cases that development is consistent with the natural arc of things. Also, the fundamentals are in place for that
to happen if the Chinese continue to run sound policies and develop their markets well. There is a lot of potential
for Chinese capital markets, the RMB, and RMB-denominated debt to grow in importance because it is so
underinvested in relative to its fundamentals. For example:
China and the US are the largest trading countries, both accounting for about 13% of global trade (including
exports and imports), yet the RMB accounts for only about 2% of world trade financing while the dollar
accounts for over 50%. It would be pretty easy to increase the share of trade financing in RMB.
While China accounts for around 19% of world GDP9 (and is growing at a faster rate than the US) and has
around 15% of global equity market capitalization, it has only about 5% weight currently in MSCI equity
indices and its assets represent only about 2% of foreign assets in portfolios. In contrast while the United
States on the whole accounts for around 20% of world GDP and is growing slower, it now accounts for over
50% weight in MSCI equity indices and has around 48% of non-American money in it. My point is that
Chinese markets are underinvested in because the investment has lagged the development, especially for
foreign investors.
As previously explained and shown in the development of the Dutch, British, and American empires, the
development of the world’s leading capital markets and the world’s capital market centers of Amsterdam, London,
and New York was an essential step in each empire’s development to become the leading empire and has
traditionally lagged the country’s fundamentals the way the Chinese capital markets and Shanghai as a financial
center (and to a lesser extent Hong Kong and Shenzhen) have lagged China’s developments.
The development of Chinese currency and capital markets would be detrimental for the United States and
beneficial for China. So once again it seems likely that American policy makers will be forced to choose
between a) trying to disrupt this evolutionary path by becoming more aggressive with their wars (in this
case via a more aggressive capital war) and b) accepting that evolution will likely lead to China becoming
relatively stronger, more self-sufficient, and less vulnerable to being squeezed by the US at the expense of US
leadership in this area, especially over the next 5-10 years. We are seeing some early signs of US moves to
curtail Americans’ investments in Chinese markets and to possibly delist Chinese companies from American stock
exchanges. These are double-edged swords because while being marginally harmful to Chinese markets and listed
companies they also weaken American investors’ and American stock exchanges’ abilities to be competitive, which
will support the development of those in China and elsewhere. For example, the Ant Group’s choice to list on the
Hong Kong and Shanghai exchanges gives investors the choice of investing on those Chinese exchanges or
missing out on those investments, which are listed there and not on other exchanges.