China's State Council said on March 25 that Shanghai will be built into an international financial centre and a global shipping hub by 2020. Over the past decades, Shanghai has witnessed economic boom and social development, which made great contribution to the country's growth. Now the time has come for a key transition.

Solid foundation for financial services

"Shanghai used to be financial centre in the Far East and the city has solid foundations for financial services," said Professor Xiao Geng, Director of Brookings-Tsinghua Centre.

Xiao said the construction of an international financial centre requires a perfect financial system, financial institutions, professionals, environment and advanced management. Among all the cities in China, Shanghai is the favorite choice.

So far, the financial system in Shanghai has dynamically taken shape. The city has set up a complete financial institution, including commercial banks, securities companies, insurance companies, fund management companies, trust companies, futures companies and financial leasing companies. The financial strength of fund management companies and trust companies are among the nation's top level. There were a total of 850 financial institutions in Shanghai by the end of last June.

The total assets of Shanghai's financial institutions take a large portion of the nation's total. By the end of the Tenth Five-Year period, the total assets of Shanghai's financial institutions hit 3.2 trillion yuan, accounting for nine percent of the national total. Shanghai registered 6.94 trillion yuan in assets of financial institutions, taking up 11.5 percent of the nation's total of 60.48 trillion yuan by the end of 2007.

Great market penetration

Maturity of the financial market is one important index used to measure international financial centers. However, the influence and market penetration of the financial market in Shanghai is continuously growing.

So far a national financial market system including stocks, bonds, currency, foreign exchange, commodity futures, Over-the-Counter (OTC) derivatives, gold and property rights have been formed. Shanghai is now China's financial headquarters and few international financial centers can offer that wide a range of financial services.

The total transaction value and scale of the Shanghai financial market has been steadily expanding. In 2007, the total turnover reached 12.76 billion yuan, a year-on-year growth of 117 percent. Although the volume of the security market experienced yearly contraction in 2008, the transaction volume totaled 76.6 trillion yuan by the end of last June, up 41.07 percent over the same period in 2007.

The transaction volume of stocks at Shanghai Stock Exchange in 2007 totaled 30.54 billion yuan, standing seventh worldwide and second in Asia; the outstanding balance of bonds at China Foreign Exchange Centre stood at 13 trillion yuan, ranking seventh in the world. Additionally, some products at Shanghai Futures Exchange were among the world's top, with the transaction value of natural rubber standing at 8.7 trillion yuan and cupper 10.1 trillion yuan, ranking first and second worldwide respectively.

Direct financing is the most important index to gauge the construction of an international financial centre. According to statistics on stocks, state bonds, debt of listed companies and corporate short-term financial bills, direct financing in Shanghai accounted for 17.7 percent, 20 percent and 25.2 percent of nation's total in 2005, 2006 and 2007 respectively. From 2002 to 2007, total financing of state-owned enterprises stood at two trillion yuan, with 95 percent of the financing from enterprises outside the city.

Effectively open up to the outside world

Opening up to the outside world is another characteristic of an international financial centre. Shanghai advances ahead of other domestic cities in this regard.

A total of 375 foreign-capital financial institutions and Chinese-foreign equity joint financial institutions set up headquarters or branch offices in Shanghai by the end of June 2008, accounting for 44.1 percent of the city's financial institutions. Among them, there are 17 foreign banks and five foreign insurance companies, taking up two thirds of foreign-funded banks with legal person status and five sevenths of foreign insurance companies in China respectively.

According to Fang Xinghai, director of Shanghai Financial Service Office, Shanghai has always been the frontrunner of financial reform. At present, almost all the private securities and funds, QFII, QDII as well as private banking services are in Shanghai.

Development through Shanghai-Hong Kong win-win cooperation

Will the role of Hong Kong be weakened if Shanghai becomes an international financial centre? Professor Xiao said Shanghai should seek development through win-win cooperation with Hong Kong.

According to Xiao, Shanghai has absolute advantages over other domestic cities, specifically, large numbers of state-owned enterprises that have gone public; while Hong Kong enjoys superiority of international resources that Shanghai has not, namely foreign listed companies and supervision systems. Shanghai and Hong Kong can maximize mutual advantages and seek development through win-win cooperation.

Source: Xinhua