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China Pushes Shanghai As International Financial Centre

by Mary Swire, LawAndTax-News.com, Hong Kong

02 February 2012


China’s National Development and Reform Commission and the Shanghai Municipal Government have disclosed that it is intended that Shanghai will be a centre for onshore renminbi (RMB) trading, clearing and pricing by 2015, before it becomes an international financial centre by 2020.

Although a timetable was not given for any of the detailed measures in the plan, it is envisaged that Shanghai will achieve an annual financial market volume, net of foreign exchange trading, of RMB1,000 trillion (USD158.5 trillion) by 2015, from only some RMB385 trillion in 2010 (but which was five times its volume in 2005).

It is intended that RMB pricing will be decided mainly on the onshore rather than the offshore market, with, for example, the Shanghai interbank offered rate (Shibor) becoming the benchmark for global RMB-denominated credit. It is also said that China will encourage overseas companies to float RMB shares in Shanghai.

In addition, foreign financial institutions will be encouraged to set up regional, or even global, headquarters in Shanghai, and it is envisaged that there will 320,000 financial sector professionals employed in the city by 2015.

Although it was suggested by some that the plan would put Shanghai in direct competition with Hong Kong, other experts, and the Hong Kong government itself, have denied the possibility, given that Hong Kong is already the offshore RMB centre and that the two cities will offer different financial products to different customers.

The intention is believed to be that the cities are to be complementary in their separate roles in developing RMB business. They signed the Memorandum of Understanding Concerning Advancing Hong Kong-Shanghai Financial Co-operation in 2010, to enhance financial co-operation between the two places, and have already held discussions on ways to foster links in financial services and products, and to enhance training and the exchange of financial talents.

Hong Kong’s Secretary for Financial Services and the Treasury, Professor K C Chan, had looked, in a speech last year, at the new opportunities in trade settlement and investment products for both financial centres arising from the prospect of RMB internationalization.

Chan said that, until now, “China has encouraged the use of the RMB as an international currency by allowing RMB to flow from the Mainland to an offshore market, and for that offshore market to anchor and further develop RMB liquidity. Hong Kong has developed into the most compelling offshore RMB market.”

However, he recognized that “RMB internationalization could not succeed without the support of Shanghai, which has the largest pool of onshore liquidity and is the recognized onshore RMB business centre,” and that “there will be increasing interaction between the onshore and offshore pools of funds through intermediation between the two centres”.

He described the relationship between Shanghai and Hong Kong as a “set of twin engines” propelling the progress of RMB internationalization forward – “in the process of the internationalization of China’s capital market, we will work even more closely”.

A comprehensive report in our Intelligence Report series giving a country-by-country analysis of offshore investment funds, stock exchanges and trusts, with an analysis of the US QI regime, is available in the Lowtax Library at http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report9.asp
TAGS: investment | banking | capital markets | investment funds | forex | equity investment | China | offshore | stock exchanges | Hong Kong | currency | services

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