The most interesting thing to watch last week was certainly Beijing's Financial Work Conference, despite the debate featured in all the media over whether Starbucks coffee should be driven out of the Forbidden City.

Not all the Financial Work Conference's policy proposals have yet been released to the public, as the nation's key financial institutions are still holding their own meetings to set their work agenda for the year that has just begun.

But whatever the specific policies, the stage is already set for China's domestic capital market to show unprecedented liquidity and become one of the world's main magnets for investor money.

Rumor abounds in Chinese-language financial newspapers about millions of US dollars pouring into the Chinese stock market, now partially open to overseas investors.

Supposedly, one manager was asked to handle $700 million, probably from some large international hedge funds. Some people estimate that there could be as much as $80 billion worth of international hot money already inside China.

It doesn't matter whether the rumor can be confirmed. The basic facts are beyond doubt: With 20 trillion yuan ($2.57 trillion) in its 2006 GDP and close to 10 trillion yuan ($1.29 trillion) in domestic stock market capitalization, China is a new breeding ground for the world's largest corporations and merger and acquisition deals.

With few ready channels to other investment markets, China's domestic capital from social security funds to private savings is large enough to send its stock market skyrocketing. Enough signs were seen in 2006, when the domestic yuan-denominated A-share index almost doubled in just a few weeks before the end of the year.

Even though A-shares are now supposedly only traded by domestic and licensed foreign institutional investors on the Chinese mainland, there is no way to completely block or effectively check the international money flowing into the market. I personally have some friends, mostly overseas Chinese, who have been busy stir-frying the A-shares quite happily for the last few months.

I was not surprised about the rumor that Lenovo plans a domestic listing in addition to its Hong Kong listing. And if I were Lenovo's finance advisor, what I would say to Lenovo Chairman Yang Yuanqing is: "Do it. Better do it now."

Having said all this, it will be for the benefit of the entire world if the central government in Beijing can handle its "financial work" with new concepts and new skills. Despite the old name, Beijing's financial work is vastly different now from just two years ago, and increasingly changing. There will be a day, not far from now, when the renminbi is fully convertible and the A-share market completely open to international investors, including all the hot money that can easily throw a careless government into a helpless state.

For one thing, controlling the market by dividing its players into different classes and sectors, a method used in the past, will no longer apply. The system will have to shift to the control of process, which requires minute-to-minute monitoring and swift reaction in regulating all players.

So it is right that this year's Finance Work Conference did not accept the proposal for setting up a super bureaucracy to control the State-owned financial institutions. Following such a proposal is like wasting time on whether to have a Starbucks in the Forbidden City.

Instead, to have a responsible and truly independent financial auditing system is a much more pressing task.

(China Daily 01/22/2007 page4)