Sustainable business strategies with policy-driven economies

Abstract

Since 2010, China has put forward ample efforts to liberalize its currency and financial systems to transition into an economy with sustainable growth. However, the severe capital flight in these past two years prompted the government to place capital control regulations on both retail (individual) and institutional investors engaged in cross-border investments. These regulations include temporary halts of various programs such as the Qualified Domestic Institutional Investor Scheme and the Qualified Domestic Limited Partner initially devised to facilitate a smooth capital flow in the Shanghai Free Trade Zone, while promoting new initiatives such as the Stock Connect and One Belt One Road. The action of the government has since stabilized a continuously devaluated Renminbi and increased the alarmingly low level of foreign reserve. On the negative note, however, the regulations also dramatically suppressed the volume of cross-border transactions and subsequently caused changes in Chinese investors' profile, partnership structure and preference for overseas markets. The fast change of the investment dynamics prompts questions including if there is still strong demand for foreign assets by Asian investors, what are the channels to continue to engage with China-based investors and their capital, how to build a sustainable business strategy with a policy-driven economy, and what the potential future risks would be. To answer these questions, it is important to distinguish between channels that are temporally closed but in the long term will continue to play a significant role in liberalizing the Renminbi and channels that are still viable even under the capital control regulations. Hong Kong plays a strategic role in this discussion. This thesis is based on rigorous research combined with an in-depth analysis of the strategies of local market players who have established business relationships with Chinese investors and formed insights into future developments based on the current investment dynamics. The thesis attempts to provide an idea of the gradually changing landscape of global investments and propose more sustainable business strategies with investors domiciled in policy-driven economies such as China's.