From China'S Past "World Factory" To "World Bank"?

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The Xiaobian of the network introduces China: from "world factory" to "World Bank".

An article written by Shrey Verma, a graduate student at Johns Hopkins University, said that along with China's growing economic strength and the expansion of China's foreign investment, China's international role will change in the near future from the "world factory" in the past to the "World Bank" in the future. "Sri Verma,"

The following is the excerpt of the article:

Earlier this month, the International Monetary Fund (IMF) lowered its forecast for global economic growth. The reason was that the economic expansion of the euro area and several emerging market countries was relatively weak.

IMF President Lagarde (Christine Lagarde) cautioned that the global economic recovery situation is "fragile, uneven, and beset by many risks", and the world may experience "a new mediocrity era of long-term below average growth".

Demand is insufficient and liabilities are high.

The downturn continues to challenge the economic recovery of western countries. At this time, the focus of public attention is once again turned to China, a big country in emerging countries.

This time, however, the focus of attention is not on China's economic growth prospects, but on the potential of China's capital to boost economic growth in developed countries.

Deutsche Bank has recently published a report entitled "big angle: The Wide Angle: The Age of Chinese Capital", which mentioned that in the environment that might be called the "third generation Bretton Woods system", China's huge current account surplus will determine the next round of economic expansion.

According to the report's author, Sanjeev Sanyal, a global strategy analyst at Deutsche Bank, the scale of China's capital outflow may be very large, so as to offset the impact of monetary tightening policies carried out by central banks around the world.

This is an unasserted assertion. Economists generally hold the view that wage levels continue to rise, liberalization of financial industry and gradual opening of capital account may cause China's current account surplus to shrink in the medium term, but that is the interesting point of this report.

The report believes that the new infrastructure, excess manufacturing capacity and the pformation to the service sector will lead to a decline in China's investment rate, and the rate of decline will exceed the saving rate.

Therefore, China's "economic rebalancing" may actually widen the gap between savings and investment, leading to continued surpluses in the next few years.

IMF estimates that by 2019, China's current account surplus will reach 439 billion dollars, equivalent to 3% of gross domestic product (GDP).

According to sanal, this flood of excess capital may inhibit long-term capital costs.

This may lead to a large amount of investment funds to the United States and other developed countries.

China's overseas investment is not a new topic.

For a long time, China's overseas investment targets are mainly trade facilitation projects and natural resources of developing countries, such as Australia, Canada and other resource oriented countries.

But in recent years, as Chinese enterprises have mastered many advanced technology and consumer brands, Chinese capital has begun to flow into all kinds of technology and innovation intensive industries in developed economies.

In 2013, China's investment in the United States doubled to $14 billion, and by the end of 2012, China's total investment in the EU has reached 27 billion euros.

However, compared with China's economic strength, these figures are still negligible.

According to the data compiled by the The Heritage Foundation, China's total foreign investment in Europe and the United States has reached US $173 billion 500 million since 2005, which is only 10% of China's total holdings of US Treasuries, which is only 4% of China's total foreign exchange reserves of US $4 trillion.

Advancing towards the third generation Bretton Woods system

How can China make use of its huge foreign exchange resources to increase overseas investment activities? Yu Qiao, a senior researcher at Brookings, a us think tank, suggests that China's large foreign exchange reserves be redeployed to the large scale real economy by way of pre debt equity swap.

According to Yu Qiao, this approach involves a three step process: first, the Central Bank of China uses US Treasury bonds to exchange for Renminbi for Chinese investment entities; second, investors use these treasury bonds to exchange for us Target Corp equity; third, US Treasurys accept US Treasuries as collateral to raise funds for new investment projects.

At present, China is quietly laying the foundation for long-term strategy of bringing capital to developed countries' entity assets.

So far, China has invested in a passive way through private equity funds and other bridge capital carriers.

China has passed private equity investment institutions to direct foreign exchange reserves to direct equity investments in Europe.

For example, the Mandarin Capital Partners of China and Europe has invested directly in European companies using the funds provided by China Development Bank and China Exim Bank.

Similarly, another well-known Chinese Private Equity Investment Firm, Hony Capital, recently acquired the British chain restaurant brand PizzaExpress by using 900 million of the government sponsored Lenovo holdings company.

In addition, the newly established Shanghai free trade pilot area (Shanghai Free Trade Zone) is promoting a new wave of overseas investment by Chinese investors. Investors are scrambling to take advantage of the looser regulation of the Shanghai free trade zone and the simplified regulatory framework for cross-border trade and investment.

It is estimated that 6000 private equity funds are registered in China, and the total assets are up to US $325 billion. The Shanghai free trade zone will probably accelerate the pace of private investment abroad.

Guiding China's capital surplus through a large number of small and medium private equity funds and entrepreneurs may also lead to "decomposition" of China's overseas investment, reduce the dominance of state-owned enterprises in this area and weaken their ability to undertake large-scale takeover pactions, which often cause western countries' concerns over national security issues.

The reform of the financial sector and privatization of foreign exchange reserves will further speed up the decomposition process and reduce foreign worries about potential "Troy Trojan horses" so that China can invest in various advanced technology industries, and Chinese enterprises and investors have been excluded from these industries.

Doubts remain.

Sanyal, a global strategist at Deutsche Bank, said that the US and other developed countries absorbed China's huge surplus with the help of the "third generation Bretton Woods system". This system is the key to both the investment in the US and the recovery of global economic growth, but it is not a guarantee of success.

With the pformation of consumption driven growth mode to promote

In rebalancing, China will try to expand the welfare of the Chinese people through social security, health care and other economic interests, so as to change people's conservative savings habits and encourage them to increase their consumption.

Under such circumstances, China may begin to absorb its excess savings to support its welfare expansion plan instead of lending it to other countries.

This will mean the failure of the third generation Bretton Woods system and the weakening of the financial investment environment in western countries, which may further inhibit the economic growth of the developed countries.

Under such circumstances, Lagarde's prediction that "a new era of mediocrity growth of global economy is coming" may eventually come true.