US-China relations: threat of financial war fading as investors eye returns from likes of Kuaishou, Agora

China-based companies last year raised the largest amount of capital in the US market since 2014
Shares in Kuaishou nearly tripled in value on the first day of trading in Hong Kong last week, while Agora shares now trade at five times their initial offering price

Zhou Xin

Published: 6:15pm, 8 Feb 2021

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The threat of a financial war between the United States and China is fading.

A series of events in the past few days showed have shown that financial decoupling between the world’s two largest economies is unlikely to happen.

In addition, the fact that China-based companies last year raised the largest amount of capital in the US market since 2014, combined with the Biden administration’s decision to postpone a ban by former president Donald Trump on Americans investing in companies with suspected ties to the Chinese military by four months, have significantly reduced risks of major financial trouble in 2021.

The biggest reason for the lower financial war risks is the attractive returns offered by Chinese stocks and bonds. It would be hard for a Wall Street bank to ignore assets like Kuaishou shares, which nearly tripled in value on the first day of trading in Hong Kong last week.

China’s SWIFT joint venture shows Beijing eyeing global digital currency use, to internationalise yuan

And it would be silly for a venture capital investor in Silicon Valley to be blind to the returns offered by Chinese start-ups like Agora, the firm whose technology powers the popular Clubhouse app and whose shares now trade at five times their initial offering price.

Beijing has also moved to boost financial links between China and the rest of the world, such as supporting the Yulan bond issued by the Bank of China which has opened a new asset class for investors to access Chinese financial assets via the Brussels-based securities depository Euroclear.

At the same time, the joint venture between SWIFT, the world’s largest electronic payment messaging system, and the clearing unit and the digital currency arm of the People’s Bank of China, has shown Beijing is enhancing its ties with global financial infrastructure operators. This will make it even more difficult for Washington to cut off China’s access to the US dollar system.

It remains an open question how the geopolitical rivalry, ideological confrontation and strategic mistrust between China and the West might affect financial ties in the long run

Still, it remains an open question how the geopolitical rivalry, ideological confrontation and strategic mistrust between China and the West might affect financial ties in the long run.

The disputes between China and Britain over BN(O) passports, for instance, could cast a shadow over Shanghai-London Stock Connect, a scheme launched in June 2019 that allows eligible companies to issue depositary receipts on the other stock market.

But in general, for China and the rest of the world, the black swan of a financial war is unlikely to make an appearance in 2021.