NextGen Day

Given China’s continued opening up, the bilateral cooperation between regulators, and the two countries’ common goals in battling climate change, industry insiders and academics say there is room for cooperation between the United States and China in the financial sector.

Possibility of cooperation

According to Mingzhi Liu, a professor of economics and finance at Tsinghua University PBC School of Finance, China and the United States could further promote cooperation between their financial institutions in areas like the opening up of financial markets to one another and in matters relating to currencies.

At a panel discussion on Thursday that was hosted by the American Chinese Financial Association (ACFA), Liu asserted that financial cooperation between the US and China benefits both countries’ economies and the global community as a whole.

“China and the United States can accomplish many things together,” declared Liu, citing collaboration in the switch to renewable energy, financial digitization, and preserving market stability.

Liu continued that the two nations could work together to use financial resources to assist emerging markets and developing nations in making the transition to a greener future. Jeffrey Ball, a scholar in residence at Stanford University’s Steyer-Taylor Center for Energy Policy and Finance, shared Liu’s perspective.

According to Ball at the panel, as China decarbonizes its overseas investment, there will be more opportunities in international markets for both Chinese and American businesses.

With its position in international organizations, the United States can take steps to encourage rather than obstruct China’s efforts to make its export investments more environmentally friendly, according to Ball.

Ball asserted that there is a tremendous desire for cooperation on both sides of the Pacific.

In addition, Liu expressed his optimism that financial sector collaboration between China and the United States will expand. “I believe the door of the Chinese financial industry openness would be larger and wider,” he added.

Opening up increases the appeal

According to Liu, if China’s financial industry continues to open up, US players will have greater options.

According to Liu, US financial players have done well in China, some even growing their businesses there.

According to Bryan Lin, CEO of Huatai Securities (USA), Inc., China’s regulator is allowing the market to play a far larger role in IPO price discovery and price fixing by switching to a registration-based initial public offering (IPO) system.

According to Lin at the panel discussion, the Chinese government has improved the qualified foreign institutional investors program since its launch in the early 2000s, making it more adaptable, user-friendly, and hence more appealing as a tool for international investors.

According to him, northbound trading under the Shanghai-Hong Kong Stock Connect program now makes up 10% to 12% of total turnovers at the Shanghai Stock Exchange, up from 2% to 3% in the beginning of the year.

The ability of offshore investors to invest has substantially increased, and there are many operations by foreign investors, according to Lin.

Lin also emphasized the allure of Chinese onshore equities in the context of investors’ global asset allocation and pursuit of comparative value.

The variable interest entity structure may still be used after the China Securities Regulatory Commission (CSRC) recently defined what Chinese companies must do to list abroad, he said.

According to Liu, Chinese companies that operate in the US issue bonds and stocks, providing US financial institutions and investors with investment opportunities.

According to Lin, who cited third-party statistics, North American investors were the biggest and most active traders in Chinese equities and commission payments last year, including the Chinese American depositary receipts registered in the US.

Huatai Securities (USA), the American affiliate of a major Chinese securities firm, is growing its business, notably by adding additional employees, according to Lin.

The US Public Company Accounting Oversight Board (PCAOB) confirmed in December 2022 that it had been able to fully inspect and investigate the accounting firms with headquarters in the Chinese mainland and Hong Kong, vacating their pertinent 2021 findings.

A few months after China and the US signed an agreement on audit supervision cooperation, the PCAOB judgment was a “watershed event” because it eliminated the possibility of forced delisting and reopened the door to additional Chinese IPOs in the form of depository receipts, according to Lin.

The two sides had engaged in numerous rounds of conversations and negotiations over financial regulatory cooperation over the past two years, which Lin deemed to be positive.

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