When it comes to global economic powerhouses, China, and the United States (US) stand at the forefront. Both countries have its own unique strengths and dynamics. Comparing China and the USA's economies gives insights into how the China market compares to the US market.
Additionally, understanding China's QFI scheme adds a distinct perspective on how foreign investors can navigate the Chinese market.
In this article, we explore the key aspects of both economies. We will also examine the significance of QFI Scheme and how international investors can participate in China's economic growth story.
Economy of USA vs China
Figure 1. Forecasts of when China’s GDP will overtake United States by Goldman Sachs; The Economist
Two decades ago, China's economy accounted for only 14% of America's economy at market exchange rates. Nevertheless, economists began speculating about the possibility of China surpassing the United States to become the world's largest economy. Economist reported that Goldman Sachs predicted that this pivotal moment would occur in 2041.
However, the forecast seemed conservative by the time of the global financial crisis in 2007-2009. This is because the gap between China and the United States had narrowed more rapidly than anticipated. By 2010, China's GDP had reached 40% of America's, prompting Goldman Sachs to revise its projection to the late 2020s.
Five years later, the previously optimistic outlook seemed unwarranted. However, China's economy growth falling short of expectations was not the reason for it. Instead, it was because its exchange rate, adjusted for inflation, stopped appreciating.
In 2015, China devalued the yuan, causing concern among investors who feared further depreciation. This pushed back China's projected timeline to surpass the United States as the world's largest economy.
By the end of 2015, The Economist Intelligence Unit (EIU) revised its forecast. The revised forecast delayed the expected date until 2032, eight years later than the previous prediction.
These delays in China's economic ascendancy have raised doubts about whether it will ever happen. China's productivity growth has slowed, and its demographics have shifted as its workforce is already shrinking.
In the coming decades, experts anticipate an accelerated decline in the workforce.
The UN estimates that China's working-age population (aged 15-64) will decrease by over 100 million in the 2030s. If China does not surpass America's GDP by the middle of that decade, some argue it may never do so.
However, some organizations still predict that China's GDP will eventually surpass America's in the 2030s. One example is the EIU, who predicts that it will occur in 2039. This is close to Goldman Sachs' original date set two decades ago.
QFI China and Internationalized Products
Introduced in 2013, the Qualified Foreign Investor (QFI Scheme) is a collective regime that includes Qualified Foreign Institutional Investor (QFII) and RMB Qualified Foreign Institutional Investor (RQFII) schemes, which merged into one.
The merger and relaxed China QFII rules make it easier for foreign traders to apply and invest in China's trading market. This one-time application comes with relaxed entry criteria and simplified application documents. All these also comes with a reduced approval time once the application documentation fulfils China Securities Regulatory Commission (CSRC) requirements.
China expanded the range of onshore derivatives available to foreign traders and QFIs on November 21, 2021. It aims to provide more trading opportunities for foreign traders in the Chinese market.
The QFI scheme allows investors to trade commodity futures, commodity options, and stock index options.
How to Trade in the China Market?
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Figure 1. Source: Orient Futures Shanghai: Ways to Access China Futures Market
Access to China’s Futures market has been made more accessible with the diversification of schemes. As shown in the above diagram from Orient Futures Shanghai, traders can choose to trade through overseas intermediaries (Orient Futures International Singapore), QFI (Qualified Foreign Investor) schemes, or PFM WOFE. Currently, there are 14 futures and 9 options available in the internationalized product schemes, 27 futures, and 19 options available in the QFI scheme.
Trading Commodity Futures in the China Market
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Figure 2. Source: Orient Futures Shanghai Webinar: How to Participate in Trading Internationalised Products.
International traders can trade QFI and China Internationalised products through Orient Futures Singapore. Being an Overseas Intermediary of Shanghai International Energy Exchange (INE), Dalian Commodity Exchange (DCE), and Zhengzhou Commodity Exchange (ZCE), Orient Futures Singapore have direct access to trading, clearing, and settlement to Futures and Options products from China.
These QFI and internationalised products from China include Soybeans Futures, Rapeseed Oil Futures, Crude Oil Futures, and more.
Start Trading With Orient Futures Singapore
Being an Overseas Intermediary of Shanghai International Energy Exchange (INE), Dalian Commodity Exchange (DCE), and Zhengzhou Commodity Exchange (ZCE), when foreign clients participate in internationalised futures contracts in these Chinese markets with us, they have direct access to trading, clearing, and settlement. Our parent company, Shanghai Orient Futures, is the largest broker in terms of aggregated volume across the five regulated exchanges in China.
Orient Futures Singapore also currently holds memberships at the Singapore Exchange (SGX), Asia Pacific Exchange (APEX), and ICE Futures Singapore (ICE SG). Starting August 2023, corporate clients can also get access to the B3 Exchange through us.
We provide premium customer service at an affordable cost to all our clients. Our team will be there for you 24 hours on trading days to provide a one-stop portal for all your trades, with simple processes and an intuitive user interface that has low or near-to-zero latency.
