| China tied the US at the Paris Olympics with a gold-medal haul of 40, an outcome that state-run media in Beijing heralded as more evidence that China can rival America on the world stage. However, a very different reality has been on display of late in the arenas of economics and finance. When the US reported a weaker-than-expected monthly jobs report on Aug. 2, it hit equities in markets spanning the globe. But when July retail sales beat expectations almost two weeks later, shares climbed from Frankfurt to Tokyo. By contrast, when Chinese data this week showed the first contraction in lending in 19 years, it hardly became a talking point for global markets. While other recent news showed that famed investors David Tepper and Michael Burry are long on China, the broader picture is one of disenchantment: foreign investors pulled out a record amount of money last quarter. "The contrasting response in markets to concerns about slowing growth in the US and China illustrates that, in an era of rising geopolitical competition between the world's two largest economies, it is still America that matters most for investors," Neil Shearing, Group Chief Economist at Capital Economics, wrote in a note this week.  Photographer: Nathan Laine/Bloomberg Back in the 2010s, China appeared on the path to increasing integration with global financial markets. There was widespread anticipation it would relax its capital controls, and its regulators were prioritizing the adoption of Western-style standards and practices in its domestic financial markets. China's yuan was incorporated into the International Monetary Fund's basket of reserve currencies, and its bonds won inclusion in key global benchmarks. But as China's economic growth has slowed, and as its Communist leadership prioritizes the role of the party-state in the economy and in markets, the vision of Chinese global financial integration has all but disappeared. Recent moves by Beijing only strengthen doubts about Chinese markets being ready for prime time on the world stage, and that's helped leave China as a side-show for the global investment community. Desperate to prevent bond yields from getting too low, China's central bank has not only embraced the idea of short-selling its own government's bonds, but strong-armed other actors to cut back their transactions. Chinese brokerages have been reducing the volume of trading, in what seems to be a response to official guidance. And, in perhaps the most extreme example of intervention, some rural banks were instructed to simply renege on their government bond trades, leaving them unsettled. Being able to trade is an essential attribute to a market. If you cannot buy or sell, ipso facto there is no market. These kinds of measures are hardly going to instill confidence in global investors in the Chinese government bond market as a safe place to park cash. By contrast, US regulators have been trying to enhance liquidity in the Treasuries market—which already clocks an average of $900 billion trades every day—in part by stepping up transparency.  The Shenzhen Stock Exchange Photographer: Raul Ariano/Bloomberg As for the Chinese stock market, poor returns have eroded its appeal. The benchmark CSI 300 Index is lingering near similar levels to those in 2019. This week, the equity-index compiler MSCI Inc. announced its latest cull of Chinese companies from its benchmarks—some 60 stocks will be removed at the end of this month, after 56 deletions in May and 66 in February. Samsonite, the iconic luggage maker that listed its shares in Hong Kong amid high hopes of tapping massive Chinese tourist demand, on Wednesday said it's now pursuing a dual listing in the US. Also heading toward a US listing is Chinese self-driving automotive company WeRide, a remarkable move against the backdrop of US-China technological competition. This is a far cry from years ago, when there were grand visions of "stock connects" linking Chinese share markets with global financial hubs, spurring international investor interest in China's equities. Diminished optimism about Chinese economic growth has also reduced interest in foreign firms investing in China. Beijing's focus on boosting domestic champions, along with missteps by overseas companies, has also eaten into the profits of major enterprises that once counted on the country as a large profit center. General Motors earned billions of dollars in China as recently as 2018. Bloomberg reported this week that GM's been terminating staff in the country and will soon meet with its local partner to plan a larger structural overhaul. It all bears the signs of recognition that the glory days are long gone. The reduced flow of corporate profit remittances back home are one dynamic behind China's deteriorating investment flows. One key gauge, "direct investment liabilities" in the nation's balance of payments, dropped almost $15 billion last quarter, only the second time that figure has turned negative. If China closes out the year in the red, it would mark the first annual net outflow since comparable data began, in 1990. To be sure, China's economy remains hugely important given that it's the biggest export destination for many emerging economies and a vital market for developed nations including Germany. It's also "the key driver of moves in many industrial metals markets," Shearing at Capital Economics noted. But at the end of the day, the "US is the world's consumer of last resort," he said. At JPMorgan Chase, economists' calculations of recession risks for the US are identical to those for the world, showcasing outsize American influence. (Their estimate is 35% for this year.) In the sporting world, it's easy to imagine an all-out Chinese effort to win the Olympics gold-medal count in 2028, when the US will be hosting it in Los Angeles. But it seems hard to imagine China displacing America when it comes to global investors. —Chris Anstey Get the Bloomberg Evening Briefing: Sign up here to receive Bloomberg's flagship newsletter in your mailbox daily. Bloomberg CEO Forum: All eyes are on an Indonesia in transition. Will President-elect Prabowo Subianto follow through on his pledge to continue President Joko Widodo's policies? Can the new administration create an understanding of how and where global investment should flow? Join us Sept. 4 in Jakarta for a series of conversations on the trends, risks and opportunities facing Indonesia and the region's other economies. Register here. | 
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