The Economist - USA (2020-09-05)

The EconomistSeptember 5th 2020 Leaders 11

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nthetechindustrytherupturebetweenChinaandAmerica

continuestogrow.WillUncleSamforcea saleofTikTok,a Chi-

nese-runapppopularintheWest(seeBusinesssection)?Can

Huaweisurvivetheembargo?IsAppleshiftingitssupplychains

fromChina?Yetinonepartoftheglobaleconomythepatternis

ofsuperpowerengagement,notestrangement:high finance.

BlackRock,a giantassetmanager,hasgotthenodtosetupa Chi-

nesefundbusiness.Vanguard,a rival,isshiftingitsAsianhead-

quarterstoShanghai.JPMorganChasemayspend$1bntobuy

controlofitsChinesemoney-managementventure(seeFinance

section).Foreignfundmanagersboughtnearly$200bnofmain-

landChinesesharesandbondsinthepastyear.Farfromshort-

termgreed,WallStreet’stasteforChinareflects

a long-termbetthatfinance’scentreofgravity

willshifteast.Andunlikeintech,bothsides

thinkthey cancapturethe benefitsofinter-

actionwithouttakingtoomuchrisk.

Western,andinparticularAmerican,capital

marketsstillreignsupremeonmostmeasures.

DerivativesareoftentradedinChicago;curren-

ciesinLondon.Americanfirmsdominatethe

leaguetablesinassetmanagementandinvestmentbanking.The

WhiteHousehassoughttoweaponiseAmerica’spre-eminence,

bypushingChinesefirmstodelisttheirsharesfromNewYork,

forexample.Butif anythingthetradewarhasshownthegrowing

muscleofChinainfinance.A bigwaveofipos istakingplacein

HongKong,oftendonebyfirmskeenforanalternativetoNew

York.China’sprowessinfintechwillsoonbecentre-stagewith

thelistingofAntGroup,whichmaybetheworld’slargestipo

ever.AndthenthereisthesurprisingrushofWallStreetfirms

andotherforeigninvestorsintomainlandChina.

Theyhavebeenknockingonthedoorfor 30 yearswithlittle

success.NowtheyarebettingthatChinaisseriousaboutwel-

comingforeignfinance.Withitscurrent-accountsurplussetto

fallovertime,orevenfallintodeficit,it needstoattractmorefor-

eigncapital.Thetermsofaccesshaveimproved.Chinaisatlast

allowingWesternfirmstotakecontroloftheirmainlandopera-

tionsandhasmadeiteasierforfundmanagerstobuyandsell

mainlandsecurities.Thepotentialprizeisvast:a newsourceof

feesforWallStreetbanks,andforfundmanagersa hugeuni-

verseofpotentialcustomersandcompaniestoinvestin.

Therearerisks.Chinacouldbendtherulestoprotectlocal

banksandbrokers.Corruptionisahazard:in 2016 JPMorgan

ChasewasfinedbyAmericanregulatorsforgivingjobstowell-

connectedChinese“princelings”.Worriesoverhuman-rights

abusesmayintensify.AndnavigatingAmerica’s

sanctionsregimewillbetricky—globalbanks

activeinHongKong,suchashsbc, arealready

underpressuretocutoffsomeChineseofficials

there.YetAmericanfinancialfirms’exposureto

Chinaislowenoughthattheyhavelittletolose.

Thetechindustryisdangerouslydependenton

China: Apple assembles many ofits devices

there.Bycontrast,thetopfiveWallStreetbanks

haveonly1.6%oftheirassetsexposedtoChinaandHongKong.

China’sabilitytoattractWallStreetfirmsduringa bittertrade

warshowsthecloutitscapitalmarketshave.Buttobecomea fi-

nancialsuperpoweritwouldneedtocreateitsownglobalfi-

nanceandpaymentsinfrastructureandmaketheyuanmore

freelyconvertible.TheleadingChinesefirmshavea tinypres-

enceabroad(just5%ofrevenuesforAnt)andmostofChina’s

tradeisinvoicedindollars,makingitvulnerabletoAmerican

sanctions.BuildinganalternativetoAmerica’sglobalmonetary

networkisa hugetaskthatwilltakeyearsandrequireChina’s

control-obsessedofficialstoloosentheirgripfurther.Still,the

tradewarhasgivenChinaa bigincentivetotakethenextstep. 7

The exception

DomesticChineseassets

Foreignholdings,yuantrn

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16152014 17 201918

Equities

Bonds

Even as the trade war rages, Wall Street and China are getting closer

High finance in China

T

he pandemichas had few silver linings. One is that a huge

range of human activities have moved online far more

smoothly than almost anyone expected. Businesses have let

their white-collar staff work from home for half a year now. Peo-

ple are attending yoga classes remotely. Brits are appearing in

court digitally; New Yorkers are tying the knot online.

Yet as they migrate to the virtual world, many people are dis-

covering that they do not have the right documents to prove their

identity. Businesses use credit cards, in effect, as a rough-and-

ready proof that people are who they say. Governments cannot

do that. Rather than simply exchanging goods for money, they

give money away and issue commands, so they need to know

more about their “customers” than, say, a supermarket does. In

countries without a system of secure digital identities, the clo-

sure of bricks-and-mortar government offices and the shift of

public services online have caused havoc (see International sec-

tion). Divorces and adoptions have run into a virtual brick wall.

Italy’s system for doling out emergency payments crashed and

then demanded paperwork that applicants could not obtain be-

cause government offices were shut. In America, Washington

state paid $650m in unemployment insurance to fraudsters who

made applications using stolen identities.

No such havoc occurred in Estonia, a tiny Baltic state where

every citizen has an electronic identity. More than just an identi-

ty card, it links every Estonian’s records together. So when the

government created a furlough system for workers affected by

Time for proof

Covid-19 has strengthened the case for digital identity systems

Digital ID cards