In recent years, we have seen an increasingly assertive China in various global arenas, be it political, economic or sports. Observers say Chinese diplomats are now openly talking tough in regional disputes at groupings such as the Asean-related forums.

At the recently concluded G-20 summit in Seoul, Western critics lamented that the administration of United States President Barack Obama allowed the Chinese to get away lightly on the hot issue of global imbalances.

For their part, Chinese leaders are demanding a bigger voice in global institutions such as the World Bank and the International Monetary Fund (IMF) and pushing for the yuan to become a reserve currency.

But, more importantly, the difference between the rhetoric from China today and that of "firing empty cannons” during the old Mao Zedong days is that the rising dragon now wields enormous financial power.

China has overtaken Japan as the second-largest economy in the world. It is now home to the world’s two largest banks.

The Chinese initial public offering market is the biggest in the world. Mainland conglomerates have been making strategic global acquisitions in energy, mining and cars, led by the state-owned companies.

More Chinese privately-owned groups are now getting into the act by buying up brand names in the US and Europe, and the latest buzz is over a Chinese firm seeking to acquire US entertainment giant MGM.

But how far, really, have the Chinese asserted their financial clout?

At a conference in Beijing this week entitled "China and the Changing World Financial Order”, influential Chinese banker Guo Shuqing didn’t disappoint those who travelled to the Chinese capital to listen to his views.

Immediately setting the stage for the debate, the chairman of the China Construction Bank, which overtook the Industrial and Commercial Bank of China as the world’s largest bank earlier this month, dismissed the global imbalances as merely a "division of labour” that should not be tampered with.

He took a jab at the US, noting that Americans continue to consume too much or "to be concise, waste too much”.

The keynote speaker then laid out a laundry list of things he hoped to see happen. Among them, he said the yuan should be "immediately” included in the Special Drawing Rights (SDR) basket of the IMF. He also called for lesser dependence on the US dollar and an expedited global use of the yuan in international trade settlements, foreign aid, central bank reserves holdings and fund raisings.

On the two Bretton Woods bodies, Mr Guo said: "If you ask China to do more (in stimulating global recovery), you have to give China voice in international financial organisations.”

On the issue of internationalisation of the yuan and its role in IMF’s SDRs, many experts have remained sceptical, pointing mainly to the currency’s lack of convertibility and liquidity.

"It is an interesting idea to discuss theoretically. But in practice it is hard to implement,” said Ms Yifan Hu, chief economist of CITIC Securities.

She reckons a more viable option would be for China to let the yuan play a regional currency role in its familiar Asia backyard before proceeding with its global ambitions.

The IMF responded this week to say that China’s yuan does not currently meet the "freely usable” criteria required for inclusion in the SDR basket.

Mr Fred Hu, a former Goldman Sachs Greater China chairman who now runs his own investment firm Primavera Group, however, stuck his neck out to predict that all capital controls in China will be fully liberalised in three to five years.

Weighing in on the debate, Mr Murtaza Syed, deputy representative for IMF in China, said that for a currency to be accepted internationally as a reserve currency, the home country must have a developed financial market supported by credible institutions such as the central bank. On that front, he felt "China still has a long way to go".

On the flip side, Mr Syed warned the Chinese that there would be costs attached to having an international currency as the government could lose the exchange rate mechanism as a key macroeconomic tool to manage its economy.

Many financial experts agree that the lucrative domestic markets in the world’s second-largest economy remain the focus for Chinese banks and their overseas exposures are still small despite some notable acquisitions.

Mr Fang Xinghai, director-general of the Office of Financial Services in the Shanghai city government, said: "China’s savings rate is so high, there is no way Chinese banks can’t succeed here.”

But financial experts, from within and outside China, say the country’s banks and other companies face multiple challenges, including in the area of mergers and acquisitions. Chinese firms are still operating with one hand tied to their back when it comes to M&As. Chinese regulators continue to meddle with banks and conglomerates and many such organisations lose out on overseas M&A deals because of the bureaucratic approval process.

A top financial regulator himself, Mr Fang thinks it will take a long time for Chinese conglomerates and banks to become truly global because of that tight regulatory grip. Another impediment, he noted, is that mainland conglomerates have not done very well in localising their recruitment when they go global, preferring to hire only Chinese executives. Others say there is simply a shortage of talent.

Mr Eugene Ludwig, a former vice-chairman of Bankers Trust who now runs his own financial group, disagrees, saying China is loaded with talent. The challenge, he says, is how China manages and "self-reflects” on its success and continues to adapt to rapid changes, such as the evolution of new sophisticated products.

If anything, one clear observation from the Beijing conference was the presence of the old boys’ network among the Chinese financial diaspora.

Leading Taiwanese-born American M&A lawyer Howard Chao, when introducing his panel of financial top guns, said three of the mainland Chinese speakers used to hang out with him at the Harvard cafeteria decades ago. All four have extensive exposure in global firms like Goldman Sachs as well as leading domestic groups such as CITIC.

Talent notwithstanding, there is the lack of a sophisticated capital market to support Chinese firms, resulting in many Chinese buyers having to use expensive cash to fund their acquisition aspirations. Chinese buyers have also become easy targets of overpricing from global sellers.

Understandably, Chinese top financiers have argued that Chinese forays overseas are not "strategically motivated” as feared by many in the West. Instead, they are a result of the integration of the Chinese economy into global markets, especially after China’s entry into the World Trade Organisation.

"It is a necessary natural outcome, not necessary a strategic policy option,” said Primavera’s Mr Hu. He noted that Chinese companies have been expanding overseas to stay competitive, such as securing markets, raw materials, distribution networks and branding.

Mr Arthur Kroeber, who runs an independent China research house, says Chinese firms still suffer from a "trust deficit” when they venture overseas. He says that, given its increasing size as a world investor, China has a stake in global economic stability.

Chinese firms must perform "responsible acts" to show that they are not merely acting out of self interest when they acquire in "suspicious global environment”, he says.

Indeed, Mr Wu Yibing, who heads the private equity group of CITIC and was instrumental in the Lenovo acquisition of part of IBM’s business, attributes the success of that landmark deal to the patient and comprehensive transition where the goal was to create a better global company and not merely a Chinese name.

Mr Hu also urged Chinese companies to communicate extensively with host regulators and the public to address fears of what he called the "800-pound gorilla that’s China".

http://www.todayonline.com/Hotnews/EDC101120-0000050/Chinas-ascent