NAVIGATING US-CHINA PARALLEL TRACKS
This points to something larger than a debate about capital controls. China is quietly building a parallel ecosystem centred on the yuan.
For the past several decades, the world has operated around one dominant financial system centred on the US dollar. The yuan system is not a replacement, at least not yet.
But a world with two financial systems will be more complicated to navigate. Money flowing through Hong Kong increasingly operates under Chinese oversight, while capital in the dollar system remains governed by American laws and institutions.
A company listing in New York accepts a heavier regulatory burden and greater exposure to lawsuits, but benefits from the predictability of US rules. Listing in Hong Kong involves fewer legal requirements, but investors must also consider the influence of Beijing.
The aim is not to replace the dollar system overnight, but to build deeper capital markets and a larger yuan ecosystem with Hong Kong as its gateway.
Hong Kong is becoming more international, but on China’s terms. Whether that is reassuring or unsettling depends on where one sits. But mistaking it for a retreat is a serious analytical error.
Diana Choyleva is founder and chief economist of Enodo Economics and a keynote speaker on global macroeconomics, China, and US-China strategic competition. She is also a senior fellow at the Asia Society Policy Institute’s Center for China Analysis.