China has the money

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Many thanks to a regular reader of China Bites who pointed out an important omission from my list of why SMEs should do business in China which is all about money and, in particular, China’s foreign exchange reserves which now stands at US$3.399 trillion, almost three times the reserves held by Japan (US$1,387 trillion) which is the second largest in the world.

The largest four banks in the world are all chinese (the Industrial & Commercial Bank of China, the China Construction Bank, the Agricultural Bank of China, and the Bank of China) with a combined asset value of $13.784 trillion, which is roughly equivalent to the next 6 largest banks combined, and they export capital via overseas lending at an annual rate of 11%, suggesting that they are starting to have more influence around the world, particularly in major infrastructure projects in developing countries. HBR reports “In total, the Chinese state and its subsidiaries have lent about $1.5 trillion in direct loans and trade credits to more than 150 countries around the globe. This has turned China into the world’s largest official creditor – surpassing traditional, official lenders such as the World Bank, the IMF, or all OECD creditor governments combined”.

According to the Economist “their tentacles are spreading. Since 2015 their share of global cross-border lending has risen from 5% to 7%. Foreign assets account for 9% of their book. Chinese banks supply two-thirds of all cross-border lending within emerging markets”. And then “Chinese banks are making unnoticed leaps. Eager to diversify funding and amass firepower for acquisitions overseas, home-grown companies have been rapidly raising dollar debt. Issuance reached $310bn last year, from $71bn in 2016”. And then there’s US Treasury Bonds, with China owning $1.1 trillion (approx 5% of all US debt) and direct investment into Europe which reached a peak of US$42 billion in 2016 but has since fallen away to around half of this number (mainly invested in UK, France, Italy and Germany).

China has the money and the market for SMEs.


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