April 3, 2012
Six centuries ago, when London and Paris were irrelevant, plague-infested backwaters, and New York City wasn’t even on the map, the greatest city in the world was Nanjing– the capital of the Great Ming.
At the time, Nanjing was not only the most populous city on the planet, it was also the pinnacle of civilisation. Art, science, technology, and commerce flourished in the Ming Dynasty’s liberalized economy, which constituted a full 31% of global GDP at the time.
(By comparison, the US economy is roughly 25% of global GDP today…)
Taxes were low, the currency was strong, and overseas trade thrived. For a time, Nanjing truly was the centre of the world.
Over the next several hundred years, the tide shifted. The Ming Dynasty fell, and power was transferred further west to the Ottoman Empire, and eventually to Europe which had finally emerged from the Dark Ages as the most advanced civilisation on Earth.
Pointless crusades and inquisitions gave way to a surge in medical, technological, and scientific breakthroughs. By the late 17th century, western civilisation had asserted its primacy in the global pecking order.
This phenomenon has lasted for several hundred years now… but as history has shown repeatedly, power centres frequently shift. The world is now witnessing yet another transition of power, this time from west to east, as the US-led western hierarchy suffocates within its own debt-laden Keynesian fiat bubble.
Most westerners refuse to believe it. They can’t envision an era in which the west doesn’t lead the world… in everything. And yet, that time is already upon us. Perhaps nowhere is this more pronounced than in finance:
1) Hong Kong, from whence I write this missive, has been home to the most public offerings in the world ever since overtaking New York in 2009. In 2010, more than $57 billion was raised in Hong Kong IPOs, roughly twice as much as New York.
From Italian luxury house Prada to the luggage maker Samsonite to Swiss metals house Glencore to the US handbag maker Coach, big names have been attracted to Hong Kong. Rovio, the creator of the popular Angry Birds game, is expected to list in Hong Kong as well.
Whereas it was once the obvious choice to list in the US (or London), Hong Kong has now become the best option for most businesses seeking public capital.
2) According to the Financial Times’ Banker intelligence unit, Singapore leads every other major financial centre in the world in financial sector foreign investment.
The top three, in fact, are Singapore, Dubai, and Hong Kong. Singapore receives more financial sector foreign investment than New York, London, Frankfurt, and Switzerland combined.
Money goes where it is treated best… and the market is telling us that Singapore is the right destination.
3) According to a new study from the Inter-American Dialogue, China is now dominating emerging market development finance, especially in Latin America.
In the past, countries like Brazil, Ecuador, and Venezuela went to the World Bank and IMF when they needed money. But now these vestigial organisations of the old western hierarchy are becoming a sideshow to Chinese financial muscle.
The study shows that, since 2005, Chinese banks have loaned more money and made more loan commitments to Latin America than the World Bank and International Development Bank combined… and they’re doing it at higher interest rates.
Why? Because developing nations have figured out that when you take the World Bank’s money, you have to put up with them telling you how to run your government. Chinese bank loans don’t come with political strings attached.
It’s extraordinary that this is happening in the US’s backyard.
4) The most obvious sign of Asia’s rise is the perhaps now forgone conclusion of China’s currency becoming a new global reserve option to compete with the dollar and euro.
Every month it seems, there is a new move to loosen China’s once-strict currency controls and open up– new central bank currency swaps, renminbi (RMB)-denominated futures contracts in Chinese exchanges, the introduction of RMB accounts at non-Chinese banks, non-Chinese companies issuing bonds in RMB, etc.
In fact, if you want to mark your calendar on the day the West concedes to Asia, it will be when the US government begins issuing Treasury securities denominated in renminbi.
None of this means that North America and Europe are falling off the edge of the earth. What it does mean is that the old system is being reset, and the rules being rewritten.
It’s not the first time in history that such a shift has occurred, and it won’t be the last. This change is nothing to fear… merely something to accept, embrace, and prepare for.
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