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How International Observers Undervalue the Chinese Bond Market

July 15, 2018 • GLOBAL ECONOMY, China, Dan Steinbock

BDan Steinbock    

Criticism is typical of vibrant international media. Yet, prejudiced biases in financial matters have the potential to harm investors worldwide. The Chinese bond market is a case in point.

 

Not only is China’s bond market growing explosively, but it has become diversified and provides broad investment options to both Chinese and foreign investors.

However, should you believe the hype, China’s bond era is about to “go through a rough patch” (CNBC), will be “tested by rising defaults” (Bloomberg) and may have “more defaults” in the future (Wall Street Journal). While China bulls might accuse such coverage of being excessive “glass is half empty” reporting, a more substantial problem haunts these briefings.

Essentially, such reports tend to assess the financial future of large emerging economies, which have relatively high growth rates but low living standards, with the same benchmarks as major advanced economies, which are amid secular stagnation but have high living standards.

As a result, such reports systematically undervalue financial futures in emerging economies, while overvaluing those in advanced economies. That’s misleading to investors at a historical moment of transition when financial might is following economic power toward emerging economies.

 
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About the Author

Dr. Dan Steinbock is the founder of Difference Group and has served as research director of international business at the India, China and America Institute (US) and a visiting fellow at the Shanghai Institute for International Studies (China) and the EU Center (Singapore). For more, see http://www.differencegroup.net/

The original commentary was released by China-US Focus on July 12, 2018.

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