China 's rising middle class is facing an investment dilemma. Tried and true investment strategies that worked over the past twenty years are not working anymore. The dilemma is £¬ how to make their savings grow. The stock markets around the world are in the middle of a bear cycle; the real estate bubble is about to burst; bank interest rates are at an all time low. The majority of the new wealthy earned their capital through either manufacturing, retailing or information technology. They are typically double income families that are not afraid of taking risks when it comes to investing; as a result most of them have lost 50 to 80 per cent of their money in the stock market over the last 5 years. However, they are still reluctant to put their finances in the hands of bankers, largely due to the low interest rates and ever present inflation but primarily due to the lack of investment products offered by the banks and the absence of experienced money managers
American financial service companies are scrambling to figure out how to enter the Chinese market. Demand for diverse investment products is outstripping supply by Billions. Economists around the world agree that China 's assets under management will surpass Japan as number one in the world within the next few years, reaching US$2.63 trillion by 2009. Financial services that are taken for granted in North America, Europe and the United Kingdom are non-existent in China accept for limited non-leveraged Foreign Exchange Trading (Forex). Just ask any money manager outside China what they think about the potential opportunities here and they will begin to drool like Pavlov's dog when he heard the bell. The plans are in the works to liberalize China 's banking system by 2007 allowing foreign institutions to serve Chinese customers in renminbi-based business. In one years time the Chinese banking system will be integrated with foreign banks making standard wealth management practices available but what to do until then?
The US $ held in china under mattresses and in banks is considerable. It is estimated that there are 8 trillion United States ”®I owe you a dollar' pieces of paper floating around the world and there could be more than 10 per cent of them in china. However, the ”®mattress factor' makes the actual amount impossible to determine. The US $ in china puts a lot of pressure on the RMB. The world's economic academics have used currency evaluation models that indicate that the RMB is undervalued by 15-30 per cent. This current undervaluation puts more pressure on the RMB because speculative foreign capitalists know that what ever they have invested in china will eventually increase by 15-30% when the real economic value of the RMB is realized. Government policy makers have a difficult road ahead. To maintain the staggering economic growth, expected to be 9 per cent this year, the RMB simply must remain over 8:1 US$ otherwise exports will decline. A decrease in exports could lead to social unrest and yet the deflated RMB draws more speculative foreign investment into the porous economy putting more pressure on the Yuan. |
