When in March 2020, covid-19 ripped through the global economy, even the mighty US treasury market – the world’s safest and most liquid financial asset – wavered amongst rising uncertainty. Unthinkable just a few years earlier, Chinese government bonds emerged as a safe haven for international investors seeking shelter from the turmoil in financial markets (Lockett, 2020). Whereas the US treasury market stabilised after a brief while, this brief anecdote highlights a broader trends in global markets: the reallocation of financial assets towards China.

This is despite the fact that capital markets in China function fundamentally different from the ‘global’ markets that underpin the global financial order (Petry, 2020b). While China’s markets have increasingly opened to global investors in recent years, this opening process follows a decidedly state-capitalist institutional logic (Petry, 2020a). Global financial actors investing into China have to accept Chinese rules of how markets function in a state-market configuration which contests the key underlying principles of the liberal global financial order like the free flow of capital, the primacy of private financial actors and their ability to create profit as well as non-intervention by the state.

This, however did not dissuade global financial institutions from flocking to China. Over the course of 2020, global investors poured more than $1 trillion into Chinese stock and bond markets (Lockett & Hale, 2020) and global financial institutions scrambled to reallocate their business activities to China (Bloomberg News, 2020). Despite the US-China trade war and political developments in Hong Kong, China is gaining in importance for the allocation of financial assets globally. The fact that China is the only major economy that experienced economic growth in 2020, only adds to its growing attraction as an investment destination. Similar to other crisis periods, covid-19 might arguably crystallise as a critical juncture in China’s global rise. This research project therefore aims (1) to analyse the growing reallocation of global finance towards China as well as (2) its implications for the liberal global financial order: How malleable is global finance and is it adapting to China’s rules of the game (McNally & Gruin, 2017)? How do financial institutions mediate growing Sino-American tensions? And what are the implications for US power that is partially based on US financial institutions (Konings, 2007)?

(1) Reallocation: The extent of this reallocation towards China has not been properly assessed. The research proposal therefore aims to create a detailed dataset on the changing reallocation of financial activities – assets, operations and staff – towards China, focusing on the largest global (a) banks, (b) asset managers, (c) brokers, (d) hedge funds and (e) index providers. The creation of this database requires a detailed analysis of the annual and quarterly reports, brochures, investor presentations and corporate websites of those financial actors, complemented with financial news accounts and potentially a financial database such as a Reuters Eikon or Bloomberg Terminal (checking access opportunities).

(2) Implications: This reallocation takes place within an increasingly contested liberal global financial order, especially as the US-China trade war gained a financial dimension. The recent investment ban on companies linked to China’s defence sector by the US government being a case in point. In addition, international investors have to navigate China’s more political capital markets. Three important questions arise thereby: (a) How do global financial institutions mediate the growing US-China tensions within this reallocation, (b) whether/how this affects the relationship between the US state and finance and therefore US power and (c) whether global finance is now increasingly playing according to Chinese rules. Therefore, the research project proposes to conduct a series of semi-structured interviews with (mainly) global financial institutions as well as Chinese and US authorities. Interview partners will be selected from both an extensive existing network of contacts, snowballing as well as by cold-calling missing important actors. Interviews will be conducted remotely.

References

Bloomberg News (2020) Wall Street still hungry for China’s choicest office addresses. Bloomberg, 29 April.

Lockett, H. (2020). China’s $13tn bond market shines as treasuries turn treacherous. Financial Times, 25 March.

Lockett, H. & T. Hale (2020) Global investors place Rmb1tn bet on China breakthrough. Financial Times, 14 December.

Konings, M. (2007) The institutional foundations of US structural power in international finance: From the re-emergence of global finance to the monetarist turn. Review of International Political Economy, 15(1): 35-61.

McNally, C.A. & J. Gruin (2017) A novel pathway to power? Contestation and adaptation in China's internationalization of the RMB. Review of International Political Economy, 24(4): 599-628.

Petry, J. (2020a) Financialization with Chinese characteristics: Exchanges, control and capital markets in authoritarian capitalism. Economy & Society, 49(2): 213-238

Petry, J. (2020b) Same same, but different: Varieties of capital markets, Chinese state capitalism & the global financial order. Competition & Change (online first).