US Senator Marco Rubio has reportedly written to the CEO of global index provider MSCI Inc questioning why the company includes certain Chinese stocks in its widely tracked emerging market index and saying China can no longer be allowed "to reap the rewards of American and international capital markets."
Since the index compiler announced in 2017 it would include stocks listed in Shanghai and Shenzhen in its global emerging-markets gauge, the A-share market has reportedly seen a capital inflow of $84 billion.
MSCI inclusion prompts foreign investors to increase their focus on Chinese shares, but China is not the only beneficiary.
The trend of investing in Chinese stocks is driven by a very simple reason: Looking for profits in the A-share market.
Each year, an enormous amount of US dollar-denominated capital crosses borders pursuing profits. This is the basic reason why the US can remain complacent in its financial hegemony.
The Chinese stock market offers the chance to make profits, with the benchmark Shanghai Composite Index having risen more than 15 percent so far this year. Some foreign financial institutions have made big money by investing in Chinese shares. Now what Rubio suggests American people do, is to cut off all ways of making money from the A-share market.
Rubio's letter reflects a lack of financial knowledge mixed with an unprecedented hostility toward cross-border capital flows, but the words are coming from a member of the political elite of the US, the world's financial superpower.
That's unbelievable! Rubio's story can help people better understand why the superpower has seen its financial status decline.
China has been taking steps to modernize and open up its stock markets to foreign investors, a move that indirectly prompted MSCI to include certain Chinese shares in its emerging market index. MSCI inclusion is a landmark step in China's integration with the global financial system. If the US demands that China further open up its financial markets and offer more opportunities for US financial institutions, this means that China's integration with the global financial system cannot experience any retrogression. It will be extremely dangerous if some members of the US political elite want to cut bilateral financial exchanges to prevent China or the US from reaping the rewards of each other's capital markets. For example, the US will suffer huge losses if China dumps its vast holdings of US government debt.
China has pledged to further open up its financial markets. Hopefully, US political elites won't prevent US investors and pensioners from making money from the A-share market.
The author is a reporter with the Global Times. bizopinion@globaltimes.com.cn
