Budapest Post

Cum Deo pro Patria et Libertate
Budapest, Europe and world news

Why China is on track to replace the US as the world’s financial center

Why China is on track to replace the US as the world’s financial center

The US’ status as the global financial hub is under threat due to brazen corporate greed and self-harming government policy
Holdings of Chinese government bonds rose in January, according to a February 12 report by Reuters citing official data, despite the fact that yield premiums have substantially narrowed between US and Chinese government debt.

These statistics come in the wake of a grim US January inflation report, showing that investors are turning to China to insulate themselves against inflation and ensuing rate hikes. Is this just an anomaly or part of a growing trend that could see China overtake the US as the global financial center?

Well, many experts have already been sounding the alarm over the latter prospect for some time. Just consider what Ray Dalio said last year. According to the Bridgewater founder’s interview with the Financial Times, “China already has the world’s second largest capital markets and I think they will eventually vie for having the world’s financial center. When you see the transition from one empire to another, from the Dutch to the British to the American, to me it just looks like that all over again.”

Dalio made these statements in response to China’s strong performance in 2020. In addition, it’s worth noting that the Covid-19 pandemic has been a serious challenge to the US’ position as the world’s powerhouse. Other factors, including fundamental government policy failings, are also working against Washington’s financial dominance.

For one, the government’s response to how Covid-19 impacted the country has been critical. Since the 2008 financial crash, foreign lending to America has steadily declined because offshores lost faith in US economic planners. But 2020 saw a truly remarkable plummet.

That year, China led the world for the first time in foreign direct investment (FDI) – even though global FDI contracted – as it managed to contain its initial outbreak of Covid-19. In 2021, while the US did reclaim its top spot with a figure over $300 billion, China also saw steady growth and set a new record at $173.48 billion.

But even if we might be tempted to write off 2020 as a blip, the trend is undeniable. A January report by Citigroup, based on three surveys conducted by the American Chamber of Commerce China, the EU Chamber of Commerce China and the Japan External Trade Organization, found that China is multiple corporations’ favorite investment destination. Among the reasons cited were China’s supply chain resilience and its effective control of Covid-19.

A large part of this also has to do with other foundational US government economic and monetary policies. As stated previously, foreign lending to America has been steadily declining since 2008 because of its poor management of the economy. It’s important to note that the Federal Reserve’s response to inflation, which is to hike rates and cool the economy down, probably won’t help things.

The fundamental idea is that if rates go up, people will spend less money and inflation will go down. As far as the conventional narrative goes, inflation is soaring because of pent-up consumer demand from the pandemic that is not being met with adequate supply. The Fed thus wants to induce a recession to even things out. But this forgets one major driver behind US inflation: lack of competition.

There’s no doubt that prices are going up, but it doesn’t make sense that this can be solely attributed to the rising cost of production, through higher wages or more expensive raw materials. It was reported that cash bonuses for CFOs rose 36% in 2021, and many of the major sectors that are hiking prices are reporting record profits.

Is it really a coincidence that BP is posting its highest profits in eight years; Exxon, Chevron and Shell are posting their best in seven, and gas prices are at an eight-year high? Of course not – and top officials know it.

According to the White House’s economic advisers, four of the biggest meat-processing companies used their market power to drive up meat prices and underpay farmers during the pandemic to boost their profits by 300%. So, they know high prices have little to do with soaring wages (which in real terms have actually decreased) and quite a lot to do with corporate greed that the US government doesn’t have the power to regulate.

This is in complete contrast with China, where the country’s powerful State Administration of Market Regulation (SAMR) dished out fines against major companies for monopolistic behavior in 2021, including a landmark $2.8 billion fine against Alibaba. China also updated its Anti-Monopoly Law for the first time in 13 years in 2021, with a specific Anti-Monopoly Bureau due to be established this year.

In addition to the fact that China’s supply chain has stood firm thanks to its Covid-19 controls, it is no coincidence that the country’s consumer price index (CPI) inflation for 2021 stood at only 0.9% thanks to its more competitive market.

In the US, Washington’s increasingly protectionist trade policies are helping to both consolidate domestic monopolies and scare away foreign investors. While designed to help the country, they will only hurt it in the long run.

Former Treasury Secretary Hank Paulson made the point in an op-ed for the Wall Street Journal published on December 9, 2020, that US financial leadership “is increasingly being challenged by fierce competition from abroad and by shortsighted and counterproductive policies at home.”

This was published a day before the S&P Dow Jones Indices removed some Chinese companies following an executive order by former President Donald Trump. It’s a policy that has been continued by President Joe Biden and something that Paulson specifically denounced.

It’s not hard to see why forcing foreign competitors to de-list from financial indexes on the false pretense of national security concerns undermines the open financial environment the US worked decades to establish. On the other hand, China is opening up its tighter financial markets to American, European and other firms, which is providing more opportunities for growth – not fewer, as Washington is doing.
AI Disclaimer: An advanced artificial intelligence (AI) system generated the content of this page on its own. This innovative technology conducts extensive research from a variety of reliable sources, performs rigorous fact-checking and verification, cleans up and balances biased or manipulated content, and presents a minimal factual summary that is just enough yet essential for you to function as an informed and educated citizen. Please keep in mind, however, that this system is an evolving technology, and as a result, the article may contain accidental inaccuracies or errors. We urge you to help us improve our site by reporting any inaccuracies you find using the "Contact Us" link at the bottom of this page. Your helpful feedback helps us improve our system and deliver more precise content. When you find an article of interest here, please look for the full and extensive coverage of this topic in traditional news sources, as they are written by professional journalists that we try to support, not replace. We appreciate your understanding and assistance.
Newsletter

Related Articles

0:00
0:00
Close
Global Cruise Industry Posts Dramatic Comeback with 34.6 Million Passengers in 2024
U.S. Demands Brussels Scrutinize Digital Rules to Prevent Bias Against American Tech
Private Equity’s Fundraising Surge Triggers Concern of European Market Shake-Out
Tokyo’s Jimbōchō Named World’s Coolest Neighbourhood for 2025
European Officials Fear Trump May Shift Blame for Ukraine War onto EU
The Personality Rights Challenge in India’s AI Era
Italy Considers Freezing Retirement Age at 67 to Avert Scheduled Hike
Italian City to Impose Tax on Visiting Dogs Starting in 2026
Study Finds No Safe Level of Alcohol for Dementia Risk
Trump Says Ukraine Can Fully Restore Borders with NATO Backing
Europe Signals Stronger Support for Taiwan at Major Taipei Defence Show
Germany Weighs Excluding France from Key European Fighter Jet Programme
Cyberattack Disrupts Check-in and Boarding Systems at Major European Airports
Björn Borg Breaks Silence: Memoir Reveals Addiction, Shame and Cancer Battle
When Extremism Hijacks Idealism: How the Baader-Meinhof Gang Emerged and Fell
JWST Data Brings TRAPPIST-1e Closer to Earth-Like Habitability
Trump Orders $100,000 Fee on H-1B Visas and Launches ‘Gold Card’ Immigration Pathway
France’s Looming Budget Crisis and Political Fracture Raise Fears of Becoming Europe’s “Sick Man”
Three Russian MiG-31 Jets Breach Estonian Airspace in ‘Unprecedentedly Brazen’ NATO Incident
European manufacturers against ban on polluting cars: "The industry may collapse"
Turkish car manufacturer Togg Enters German Market with 5-Star Electric Sedan and SUV to Challenge European EV Brands
Christian Brueckner Released from German Prison after Serving Unrelated Sentence
World’s Longest Direct Flight China Eastern to Launch 29-Hour Shanghai–Buenos Aires Direct Flight via Auckland in December
New OpenAI Study Finds Majority of ChatGPT Use Is Personal, Not Professional
The conservative right spreads westward: a huge achievement for 'Alternative for Germany' in local elections
Pope Leo Warns of Societal Crisis Over Mega-CEO Pay, Citing Tesla’s Proposed Trillion-Dollar Package
Poland Green-Lights NATO Deployment in Response to Major Russian Drone Incursion
U.S. and China Agree on Framework to Shift TikTok to American Ownership
Le Pen Tightens the Pressure on Macron as France Edges Toward Political Breakdown
Czech Republic signs €1.34 billion contract for Leopard 2A8 main battle tanks with delivery from 2028
Penske Media Sues Google Over “AI Overviews,” Claiming It Uses Journalism Without Consent and Destroys Traffic
Indian Student Engineers Propose “Project REBIRTH” to Protect Aircraft from Crashes Using AI, Airbags and Smart Materials
One in Three Europeans Now Uses TikTok, According to the Chinese Tech Giant
Could AI Nursing Robots Help Healthcare Staffing Shortages?
NATO Deploys ‘Eastern Sentry’ After Russian Drones Violate Polish Airspace
The New Life of Novak Djokovic
German police raid AfD lawmaker’s offices in inquiry over Chinese payments
Volkswagen launches aggressive strategy to fend off Chinese challenge in Europe’s EV market
France Erupts in Mass ‘Block Everything’ Protests on New PM’s First Day
Poland Shoots Down Russian Drones in Airspace Violation During Ukraine Attack
Apple Introduces Ultra-Thin iPhone Air, Enhanced 17 Series and New Health-Focused Wearables
Macron Appoints Sébastien Lecornu as Prime Minister Amid Budget Crisis and Political Turmoil
Vatican hosts first Catholic LGBTQ pilgrimage
Apple Unveils iPhone 17 Series, iPhone Air, Apple Watch 11 and More at 'Awe Dropping' Event
France joins Eurozone’s ‘periphery’ as turmoil deepens, say investors
France Faces New Political Crisis, again, as Prime Minister Bayrou Pushed Out
Nayib Bukele Points Out Belgian Hypocrisy as Brussels Considers Sending Army into the Streets
France, at an Impasse, Heads Toward Another Government Collapse
The Country That Got Too Rich? Public Spending Dominates Norway Election
EU Proposes Phasing Out Russian Oil and Gas by End of 2027 to End Energy Dependence
×