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China Road Signs

Editor's Letter: China is a country in which outward signs deceive. Yet this huge nation of contradictions is poised to take its place on the global finance stage.

The joke, widely told in China, has the ring of a modern-day parable: Ronald Reagan approaches a crossroads. One signpost points to Capitalism, the other to Communism. He takes the path of Capitalism. Next comes Nikita Khrushchev. He goes the way of Communism. Last comes Deng Xiaoping, China’s reformist leader. He stops just long enough to swap signposts. Then he heads down the new road of Communism — market economics by another name.

China is a country in which outward signs deceive. Booming cities glistening with neon and skyscrapers overshadow tin-­roofed sweatshops. Shops overflow with fashion and technology, yet consumer credit ­doesn’t exist, save for mortgages, and Chinese currency cannot be traded outside the mainland. Yet this huge nation of contradictions is poised to take its place on the global finance stage, pushing for a bigger role in the World Bank and International Monetary Fund while leading the call for a “super­sovereign” reserve currency to rival the dollar. So what does China want?

Allen T. Cheng, Institutional Investor’s Asia Bureau Chief, provides detailed answers in a special report, deflating Cold War myths while hinting at the powerful reality that is today’s China. “We have been far too quiet for too long,” says Li Jiange, chairman of China’s leading investment bank.

Making noise elsewhere in this issue is II International Editor Tom Buerkle’s timely cover story on the future of regulation. A year after the Lehman Brothers implosion, regulators say efforts to overhaul the financial system have been seriously undermined. “We are getting back into some bad behaviors,” confides Sheila Bair, who chairs the Federal Deposit Insurance Corp.

Signpost keepers beware.

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