The US financial crisis is expected to delay capital market reforms in China and other developing Asian economies stunned by the colossal damage unleashed by complex financial contracts on the US, experts say.
Flush with cash reserves, many developing Asian nations have been prodded by Western financial institutions to deepen their capital markets by introducing sophisticated financial derivatives to hedge against various risks.
But as derivatives tied to housing mortgages-backed securities were blamed for the US turmoil, whose losses could reach US$1 trillion, Asian economies would tread more cautiously in adopting complex financial trading contracts, the experts said.
“I think that is going to be the takeaway by the bank regulator in China, for example,” Asian expert Nicholas Lardy of the Washington-based Peterson Institute for International Economics said.
“I think they are going to say to themselves, ‘We were right to resist the opening up of our financial system to Western financial institutions that wanted to add in supposedly more sophisticated products into our market,’” he said.
China has not introduced any of the risk-carrying exotic derivative products, such as the unregulated credit default swap contracts, which are at the center of the current US financial chaos.
These private contracts allow companies to trade bets on whether a borrower will default.
A top new player in the swaps game was troubled US insurance giant American Insurance Group (AIG), bailed out last week by the US Federal Reserve following a similar rescue of two debt ridden mortgage giants Freddie Mac and Fannie Mae.
Top investment house Lehman Brothers, however, filed for bankruptcy in the biggest corporate debt default in history, sending global markets reeling.
“The sudden downfall of several prominent global institutions has authorities concerned about ripple effects and is prompting a reassessment of the pace of China’s financial sector reforms,” Jing Ulrich, chairman of China equities at J.P. Morgan, wrote in a report last week, the Washington Post said.
The reforms were meant to give market forces more sway.
Asian economies were alerted to the risks of derivative trading way back in 1995 when a British trader’s wrong bets in Japanese stock futures in Singapore led to the high-profile collapse of British bank Barings.
Two years later, the region plunged into a severe financial crisis resulting from a currency meltdown blamed by some on hedge funds.
The US crisis has exposed systemic missteps by banking overseers, securities regulators, the US Congress and corporate executives — all of whom underestimated the risks of leveraging and now are paying the price, the Washington Post quoted securities officials as saying.
“What is unique is that during that time, there was a sense that a well regulated financial system, like the US, would never experience a kind of trouble that Asia experienced in the 1990s and unfortunately that has proven [not] to be the case,” Brad Setser, a former US Treasury official, said.
“Maybe the US system wasn’t as well regulated as many thought and certainly it has taken on an enormous amount of risk and sees enough in ways that have uncomfortable parallels to the Asian crisis,” said Setser, now with the Council on Foreign Relations, a US think tank.
The Asian crisis roiled banks that took enormous risks by financing a high level of investments, often using foreign currency-denominated loans. It forced governments to take over the institutions by injecting public money to keep the banking system from completely collapsing.
Rather than venturing into complicated financial products with hidden risks, Asian nations should give priority to adopting key financial reforms vital to fueling their rapidly growing economies, experts said.
In China, for example, financial reforms such as interest rate liberalization, a more market determined exchange rate and a more developed “plain vanilla” domestic bond market are critical, Lardy said.
“I think the main lesson for everybody is leverage is risky,” he said. “People had forgotten that, especially with the low cost of money in the last few years.”
Huawei Technologies Co’s (華為) latest smartphones carry a version of the advanced made-in-China processor it revealed last year, results from an independent analysis showed. This underscored the Chinese company’s ability to sustain production of the controversial chip. The Pura 70 series unveiled last week sports the Kirin 9010 processor, research firm TechInsights found during a teardown of the device. This is a newer version of the Kirin 9000s, made by Semiconductor Manufacturing International Corp (SMIC, 中芯) for the Mate 60 Pro, which had alarmed officials in Washington who thought a 7-nanometer chip was beyond China’s capabilities. Huawei has enjoyed a resurgence since
purpose: Tesla’s CEO sought to meet senior Chinese officials to discuss the rollout of its ‘full self-driving’ software in China and approval to transfer data they had collected Tesla Inc CEO Elon Musk arrived in Beijing yesterday on an unannounced visit, where he is expected to meet senior officials to discuss the rollout of "full self-driving" (FSD) software and permission to transfer data overseas, according to a person with knowledge of the matter. Chinese state media reported that he met Premier Li Qiang (李強) in Beijing, during which Li told Musk that Tesla's development in China could be regarded as a successful example of US-China economic and trade cooperation. Musk confirmed his meeting with the premier yesterday with a post on social media platform X. "Honored to meet with Premier Li
Dutch brewing company Heineken NV on Friday announced an investment of NT$13.5 billion (US$414.62 million) over the next five years in Taiwan. The first multinational brewing company to operate in Taiwan, Heineken made the statement at a ceremony held at its brewery in Pingtung County. It also outlined its efforts to make the brewery “net zero” by 2030. Heineken has been in the Taiwanese market for 20 years, Heineken Taiwan managing director Jeff Wu (吳建甫) said. With strong support from local consumers, the Dutch brewery decided to transition from sales to manufacturing in the country, Wu said. Heineken assumed majority ownership and management rights
GROWTH DRIVERS: The firm expects to benefit from generative AI applications for smartphones, higher average selling price of flagship chips and market share gains Smartphone chip designer MediaTek Inc (聯發科) yesterday said it estimates that revenue would expand at an annual rate of about 15 percent this year, as a proliferation of generative artificial intelligence (AI) applications for premium smartphones are fueling demand for its flagship smartphone chips. It expects its smartphone chip revenue to outgrow the company’s average growth rate this year, benefiting primarily from the higher average selling price of its flagship smartphone chips and market share gains. The flagship chip revenue is to soar 50 percent year-on-year this year, MediaTek told an investor conference yesterday. As a whole, this year’s gross margin is