Taipan: China starts trading securities in Hong Kong

And the financial news keeps rolling in.

 This item won’t attract much notice, but I suspect it signals a fundamental shift in Asian economics, good news for American markets, and bad news for American consumers:

“The Chinese Securities Regulatory Commission said Wednesday that domestic brokerages that have at least 800 million yuan ($105 million) under management and mutual funds of 200 million yuan in size will be allowed to invested in stocks and other structured products on overseas markets under the government’s qualified domestic institutional investor program, or QDII.

…

Under the new rules that take effect July 5, mainland investors working through these institutions can buy a wider range of investment products — stocks, bonds, American depositary receipts, real-estate investment trusts, financial derivatives, and asset-backed securities — traded abroad.

…

However, investments in property, precious metals, commodities for physical delivery and shorting of securities remain off limits. “

In one sense, this is a yawner. Hong Kong is part of China. So Chinese are finally letting people invest in foreign equities? Big deal. The US market is still the largest market, far larger than Shanghai and Hong Kong combined.

But what it means in an economic sense is that a relief valve has been created for the overflowing abundance of dollars in China. Most of the ca. $1-1.5T that China has in its reserves has been invested in T-bills. It has already announced a partnership with Blackstone to invest government funds. Now it has opened a crevice to invest private funds.

The immediate effects that I foresee are rising US interest rates and some support for the US stock market. I don’t know how much of the dollar hoard China will allow out, but I would guess that they’ll start at a few billion in 2007 and ratchet it up year by year, trying not to crash the dollar.

And failing.

(A note on the title of the post.  James Clavell’s Taipan is the story of the British conquest of China through the opening of Hong Kong as a treaty port. This could well be the same story in reverse).