Investors In Asia React To U.S. Financial Overhaul

Investors in Asia are watching President Obama's proposed changes to overhaul the U.S. financial regulatory system. One giant U.S. trading partner is offering a generally positive response. Chinese economists are welcoming the proposed ideas — with some reservations.

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STEVE INSKEEP, host:

NPR's business news starts with world reaction to proposed American reforms.

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INSKEEP: Investors in Asia are watching President Obama's plans to change U.S. financial regulation. They follow the health of the U.S. financial system, not least because so many have loaned so much to the United States government. One giant U.S. trading partner is offering a generally positive response.

Chinese economists are welcoming the new U.S. reforms, with some reservations. Here's NPR's Louisa Lim.

LOUISA LIM: The prevailing attitude in China can be summed up by this story. At a financial conference recently I was sitting next to a smart young Chinese businessman. How the world has changed, he said, smiling suavely. A couple of years ago the U.S. banks didn't trust Chinese banks at all. Now the situation's reversed and our Chinese banks don't trust U.S. banks at all. Faced with this crisis of confidence, the question is this: Can the financial overhaul restore Chinese trust in U.S. banks? One verdict from Jou Shijin(ph), a professor at Renmin University in Beijing.

Professor JOU SHIJIN (Renmin University, Beijing): (Through translator) The way of thinking is correct when it comes to strengthening supervision over the U.S. financial sector in preventing crises like the mortgage crunch. But I'm rather worried about whether these reforms will affect the ability of financial institutions to innovate.

LIM: The state-run English language newspaper, the China Daily, had a more positive spin. Its front page headline today: U.S Reform Will Secure Chinese Investment. And that's why the credibility of the U.S. financial system is important here because China is America's biggest foreign creditor. The most recent figures show as of April Beijing earned $763 billion in U.S. treasuries. But for the first time in more than a year, Beijing reduced its holding by $4.4 billion. Some economists read this as a warning to the U.S. Sun Li Gin(ph) from Fudan University disagrees.

Mr. SUN LI GIN (Fudan University): (Through translator) The figure was just 4.4 billion U.S. dollars. One reason was that during the crisis U.S. treasuries were safe and stable but now the interest they offer is too low. But I don't feel strongly that China is pulling out of U.S treasuries.

LIM: Sun too has reservations about the U.S. reforms. He says China shouldn't rush to copy the reforms. Such tough regulation, he warns, could be too strict to stifle the vitality of China's financial system. Indeed how the world has changed when Chinese economists are worried about the ability of financial institutions to innovate.

Louisa Lim, NPR News, Shanghai.

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