China and other growth economies take centre stage in new financial order

Global report confirms changes to international financial map.

A new report from international legal practice Norton Rose Group has highlighted the new role that growth economies, such as China, are playing in worldwide business. Growth economies are now taking centre stage, not simply as destinations for investment, but as sources of business and of capital in their own right.

The report is the result of an extensive survey of financial institutions throughout the world, taking into account the opinions of more than 200 organisations across five continents. It's the seventh edition of the survey series from Norton Rose Group, which began in 2007.

The raw numbers show that the attention of the world's financial institutions is firmly on growth economies. Whilst few will be surprised that Asia is identified as the primary business driver in the short, medium and long-term, Latin America is also highlighted as a particularly strong short-term opportunity, with the Middle East and Africa standing out as key markets in the medium and long-term respectively.

Respondents also repeatedly fed back that the historical flow of capital from West to East is no longer the overriding trend. Indeed, growth markets are now sources of capital and not just an area of growth. This is a trend backed by the series of Western companies who have sought to raise capital on Asian stock exchanges, including Hong Kong and Singapore, in recent months, according to a Norton Rose Group report.

Respondents were also acutely attuned to the flow of capital between growth markets and understand that the traditional financial centres such as New York and London may now have a different role to play in this arena.

The survey also found:

• The enforcement of legal rights in growth markets is a major concern for survey participants, most notably in Africa (62%), Central and Eastern Europe (56%), the Middle East (47%), and South Asia (60%).
• Similarly, foreign ownership restrictions are highlighted as major barriers to doing business in South Asia (63%) and the Middle East (42%).
• Political instability has emerged as a primary concern to financial institutions, most notably in connection with Africa (70%), and the Middle East (62%).
• 42% of survey participants see the Global Financial Crisis as having created more opportunities than problems. This figure rises to 52% in Australia and 64% in Asia Pacific.
• 70% of survey participants believe global regulatory standards as proposed by the G20 are unachievable.
• 65% of survey participants reported that their boardrooms have become more focussed on risk procedures since 2008.

James Bateson, partner and head of financial institutions at Norton Rose LLP, commented:

"These findings show a shift in the financial landscape. Financial institutions are no longer talking about the potential of places such as China and India. They now fundamentally depend on these markets as sources of business and of capital. There's a genuine recognition that, in the mid and long term, Latin America and Africa will join Asia as the real drivers of financial activity.

"Whilst the findings have put a spotlight on the new roles of these growth economies both today and in the future, they also highlight the significant hurdles that stand in the way of businesses looking to play a part in the new financial order. The enforcement of legal rights, foreign ownership restrictions, political instability - these all remain challenges for growth economies and businesses.

"There's little doubt that the world is changing though. What began as a trend before the global financial crisis hit has become cemented in the post Lehman Brothers world. Previously, we talked about the importance of growth economies. The results of our research show that some of those economies have well and truly emerged, and others aren't far away from doing so. It's these regions that will be the source of much of the financial growth we see in the coming years. The focus for the more established financial institutions should be on understanding how to play their own part in that growth."