Asia is no longer the side show in international finance, Hong Kong chief executive
C Y Leung said recently. The region is very much part of the main event.
The game changers are many and varied. Investors are eager to be part of Asia’s economic growth story. And the lingering debt crisis in Europe and lacklustre performance of many advanced economies are fuelling growing need for sustainable global financial architecture that will provide stability and prosperity for current and future generations.
No-one is expecting consensus to emerge anytime soon on global best practice model for regulatory frameworks in the finance sector.
Speaking at the Asian Financial Forum in Hong Kong recently, K C Chan, the region’s secretary for financial services and the Treasury, suggested that “pragmatic” ways for international organisations and national regulators to work together are likely to provide the most “fruitful” paths towards global stability.
Here in New Zealand, BNZ chief economist Tony Alexander points out the GFC showed the global reach of financial turbulence and each nation’s inability to decouple one from the next.
“So measures to prevent it happening again have to be coordinated between the central banks and the regulatory authorities around the planet.”
Whatever the way forward may be, as both the Eurozone and the US struggle to resolve their own issues, Asia will have an increasingly important voice in the conversation around what new global financial infrastructure may look like.
A raft of questions must be resolved. Governments, regulators, academics and business leaders must, for instance, work out how best to strike balance between robust regulation and economic freedom.
Macro-economic shifts such as financial reform, regulatory structures and international standards are firmly on the agenda. So, too, are the need for responsible provision of financial services, and the corresponding requirements for investor protection and education.
At the pure business end of the spectrum, the shifting emphasis towards Asia raises investment and business opportunities, and their corresponding challenges.
Not least among these will be growing need to access talent pool of specialists who have both the depth and breadth of expertise to join the dots across multiple regulatory regimes in an increasingly inter-related world.
To Tony Alexander’s way of thinking, Asia’s increasing prominence will have major, yet incremental, implications for New Zealand business leaders.
In think-piece released late last year, Alexander cites the already rising inflows of capital from Asia and demand for New Zealand investments which are boosting depth in our capital markets.
On the people front, there’s the steadily increasing numbers of Asian migrants, and growing number of Asian tourists coming to sample the delights of Godzone.
And in terms of trade, there is, of course, the much-discussed strong demand for our food products and opportunities to integrate Kiwi technology into Asian food production systems.
At the most simplistic level, there’s an increasing pool of money coming out of China looking for home to go to, he says. “And if we can improve the functioning and size of the New Zealand capital markets, then we’re going to have better financing alternatives for Kiwi businesses.”
Aussie advantage
Yet, on many levels, Alexander questions how well New Zealand is grasping the opportunities unfolding in the region.
He compares New Zealand’s piecemeal and limited approach to opportunities in the region to Australia’s “whole of government” philosophy outlined late last year in the Aussie government’s long-awaited white paper “Australia in the Asian Century”.
While criticised by some for being short on detail, the paper at least addressed head-on ways in which Australia could, and should, alter its own thinking and actions to make the most of Asia’s growth.
It joined the dots in an increasingly Asia-centric world between Australia’s economy, science and technology collaboration, clean energy, education, business-to-business and people-to-people links and culture.
In education, for example, it stipulates that all Australian schoolchildren should have the opportunity to learn at least one of four selected “priority” Asian languages: Mandarin Chinese, Hindi, Indonesian or Japanese.
“They are not just saying ‘look how big Asia is, it’s growing, we’re on the doorstep, this will be good for us’ – which is pretty much where it stops in New Zealand,” says Alexander. “They’re thinking about how they need to change things in Australia to maximise the benefit they receive from global consumption.”
Pat English, the newly-appointed executive director of The New Zealand China Council, suggests New Zealand is now much better at presenting united front than ever before in his 17 years of experience working for Kiwi government agencies between New Zealand and China.
“It might be that the agencies don’t tell everybody about everything they do every step of the way. So looking from the outside in, you might not be able to see as much,” he says. “But operating from the inside, I see that New Zealand is very well coordinated at an operational level.”
English recently returned to New Zealand following term as New Zealand consul general and trade commissioner in Guangzhou, southern China, where he says our government is bumping up its resources.
New Zealand agencies there, for example, already include immigration, tourism, foreign affairs, and trade and enterprise. Education will follow shortly.
“I wouldn’t go so far as to say we’re better than the Aussies at handling this but I do see much greater willingness by New Zealand agencies to work together.”
Fighting shy
Tellingly though, even Australia’s cash rich institutional investors still shy away from placing their money into the Asian region.
When AsianInvestor magazine surveyed Australian superannuation fund CIOs late last year, it detected distinct whiff of caution by all but the largest players around stashing their cash in Asia.
“Given Australia’s proximity to Asia, it might be logical to think that large chunk of this money would be allocated to direct investments in the region,” writes Cherie Marriott in her summary of the results.
After all, reasons Marriott, there’s long history of goods-trade between the two continents and Australia now sells as much as 70 percent of its food, mining and energy exports to its northern neighbour.
Australia currently has not-insubstantial A$1.4 trillion pool of retirement funds looking for good home and this amount is swelling by around A$85 billion each year.
Yet, when asked to identify their biggest barrier to investing in Asian markets, just over third of these fund specialists pointed to concerns around corporate governance. Interestingly, too, the second largest group (just over quarter of them) acknowledged they lack in-house experience in dealing with Asian markets.
Pat English concedes that lack of transparency in some financial markets in Asia – “especially Chinese-speaking Asia” – is barrier for Kiwi investors.
It’s so much simpler, he says, for New Zealand investors to remain focused on their traditional, and more easily understandable, markets in the west.
He subscribes to the view that some of the international financial institutions that put their cash into Chinese bank IPOs, for instance, may have been overwhelmed by “irrational exuberance” rather than driven by hard-headed analysis of supporting documentation.
“The deficiencies in some of the financial markets in Asia are very well documented: especially around financial disclosure by companies.”
Similarly, David Jenkins, country manager New Zealand for CPA Australia, says China’s tightly-controlled banking sector will greatly inform that country’s ambitions to be true global economic powerhouse.
One of the world’s largest accounting bodies, CPA provides education, training
