China is well on its way to becoming a powerful centre of finance – it just needs to loosen up more

The Covid-19 pandemic (plus the upcoming US elections) have eclipsed discussions or even awareness of the tectonic shifts beneath the surface of the global economy. These have significance for global capital flows, and for how and by whom these will be mediated.

China’s economy (already the world’s second-largest or first in purchasing power parity terms) will emerge from 2020 some 2 per cent larger. This, when the global economy is projected by the International Monetary Fund to contract by 4.4 per cent, and Asia-Pacific economies by 2.2 per cent.

Given how hard China was hit initially by the pandemic, this is all the more remarkable in that for the second time in just over a decade (the first being during the 2008-09 global financial crisis), China is emerging as a growth pole or dynamo. Not quite as strongly this time, but a positive force nevertheless.

This is not something merely of academic interest. The psychological impact on China’s neighbours is likely to be strong. China will be seen not only as a rich source of financing (for belt and road projects, etc) and for commodity purchases but also as a “sustainably” strong source.

Money talks and what currency markets (as well as trade and investment preferences) are saying is that the yuan looks increasingly attractive. A consensus seems to be forming that the currency has entered a period of secular advance against the dollar’s decline.