China Price or China Index

Forget about the stereotype of China exporting low-end cheap goods like textiles, and forget about the so-called China Price, now I will alert you to the growing tendency of China making impact in world finance, and the would-be China Index.

The trend could be underscored by the recent deal between Chinese Development Bank and Barclay Bank. It is not just a masterstroke by a Chinese bank. Behind the headlines is the country's ambitious drive to turn from a simple reciever of foreign capital into a major player in the world finance market.

One of my friends who works at the finance policy section of the State Council observed that the deal could be a milestone event in China's march to the world capital market. For China, the previous experience in the world financial market was at its maximum limited to some major companies going public in the bourses, but that is nothing but raising foreign capital. However, China has started to take on a more positive approach by buying shares of foreign major companies. The ground-breaking move started with a bang in the form of the Barclay deal, and there will be more to come.

What to ensure? It could be more purchases of foreign shares, just like what CDB has done with Barclay. but there could be also more friendly policies towards private equity, or commodities market, like futures, options and other derivatives. In general, there will be more dynamism to Chinese capital market, and there will be more the capital movement will change from the traditional one-way to bi-direction as more Chinese capital start to go abroad to seek opportunities.

Chinese companies have been getting increasingly capital-wise, typified by the China Development Bank. It has breathed new life into Chinese bank industry, which had been burdened with non-performing loans and rigid system. The policy bank was initially launched as a non-profit bank and designed to support the big projects of Chinese government, but the bank chief Chen Yuan, a money-wise strategist, looked much further than its immediate mandate. Under his leadership, the CDB has adopted a market-oriented approach and operated like a commercial bank. That is why it is the only money-making policy bank in China. (other policy banks include the Import $ export bank, which is aimed to support China's export and import).

The picture could be clearer if you link the Barclay deal with China's purchase of the Blackstone share in May. But the two deals are different in their significance. The Blackstone deal could be mainly explained in the context of China's continusouly growing foreign exchange reserve, but the Barclay deal is more a capital operation by the Chinese bank.

I have a strong hunch that more masterstrokes by Chinese companies are in the pipeline. The West need to adjust their stereotype of China, which has been famous for cheap goods, (that is why the term China Price comes into being). But lets look forward to the coming of China Index.