June 29, 2012
The size of national capital markets continues to differ markedly. US financial assets amounted to USD 64 tr in 2010. The euro area is comparable in size, but has been suffering from fragmentation lately. In Japan, the world’s third-largest economy and third-largest financial market, financial assets stood at a significantly smaller USD 30 tr. The stock of Chinese domestic financial assets already exceeds that of any other economy, except for Japan, the US and the euro area. China is also enjoying by far the fastest economic and financial growth amongst this group of countries.
Even if China replaces the US as the world’s largest economy towards the end of this decade, China’s capital markets will remain smaller than those of the US. And even if Chinese financial markets matched the size of those in the US, it would be far from certain that they would offer comparable breadth and depth. A lot will depend on how quickly Chinese financial sector reform progresses in the coming years. Apart from China there is no other economy in the world that will even come close to rivalling the US, the euro zone and Japan in terms of financial market size. This can perhaps be best illustrated by the following example: US federal government net debt issuance (fiscal deficit) is larger than the stock of Brazilian government debt. And Brazil is not only the world’s sixth-largest economy; it is also one of the emerging markets with one of the highest government debt ratios. In conclusion, China remains the only potential rival to the US and the euro area in terms of financial market size, though, for the time being, not necessarily in terms of breadth and depth.