Development of Shanghai international financial center: highlights in 2014
SHANGHAI has embraced a new era in building itself into an international financial center in 2014. Xinhua-Dow Jones International Financial Centers Development Index (IFCD Index) shows that Shanghai has ranked in the leading group of financial centers for the first time, under the same ranking of No. 5 with Hong Kong.
Inspired by the “New Normal” campaign of further reforms and transformation of economic growth pattern, Shanghai takes the leading role in financial reforms and innovations. Xinhua News Agency Shanghai Branch, China Financial Information Center, Xinhua 08 Shanghai Head Office, and China Business News have jointly released the Top 10 events in building Shanghai International Financial Center.
1. Launch of Free Trade Account (FTA) and regulations on financial reforms within China (Shanghai) Pilot Free Trade Zone (FTZ)
This year, the national financial administrative authorities have formulated 13 detailed guidelines, including the launch of FTA, to support financial reforms in the FTZ. By the end of October, around 6, 000 FTA accounts had been established, and the cross-border RMB two-way capital pool had witnessed as much as 49.9 billion yuan (US$8.0 billion) of incoming and outgoing flows, including a 19 billion yuan in overseas loans. The RMB convertibility under capital account, RMB interest rate liberalization, RMB cross-border use, and foreign exchange administration have all been posing challenges to China’s reforms and opening up of financial sector, and tackling with such challenges will be strategically essential to the construction of Shanghai International Financial Center, which has been driven vigorously by a series of reforms within FTZ.
2. Founding of New Development Bank in Shanghai
The Sixth BRICS Summit decided to establish the New Development Bank (NDB) with Shanghai as its headquarters this July, and NDB is the first international financial institution locating its headquarters in Shanghai.
The inauguration of NDB in Shanghai is likely to enhance the city’s global influence as a financial center, further improve the internationalization of Shanghai finance, and provide precious experience and reference to other international institutions with plans to set up organizations in Shanghai. NDB will serve as a platform for Shanghai to interact with the international financial system, allowing Shanghai to play an increasingly important role within the system.
3. Kickoff of Shanghai-Hong Kong Stock Connect
Shanghai-Hong Kong Stock Connect came into operation on November 17, an iconic event in China’s reforms and opening up of its capital market. The mechanism is to bridge China’s inland market with global markets, inject growth momentum to the capital markets on both sides, and enhance the international influence of China’s capital market. Thanks to the mechanism, RMB internationalization and convertibility under capital account and RMB onshore and offshore operations will be facilitated, promoting the construction of Shanghai International Financial Center.
4. Shanghai Gold Exchange’s Launch of International Board
The first overseas investors-targeted International Board for gold exchange within FTZ started operation on September 18, and the businesses with regard to transactions, delivery, and clearance have run smoothly so far. By December 25, the International Board has witnessed a transaction volume of 165 tons of gold, totaling 39.3 billion yuan (US$6.3 billion). The operation of International Board is the first step to build Shanghai into a gold transit center in Asia, which will drive the RMB internationalization, support RMB convertibility under capital account, and enable China to compete for the gold pricing power globally. “Shanghai Gold” will stand as one of the three poles in global gold market along with “London Gold” and “New York Gold.”
5. Direct trade between RMB and Euro, Pound, New Zealand Dollar, and Singapore Dollar
This year, China Foreign Exchange Trade System (CFETS) began to conduct direct trade between RMB and other key currencies in a row, following the suit of Japanese yen and Australian dollar. The business will facilitate the trade and investment of China and related parties by lowering exchange costs, and RMB cross-border use and internationalization will also be greatly propelled.
6. Trade of crude oil futures in Shanghai International Energy Exchange Limited approved
Shanghai International Energy Exchange Limited got approval from the China Securities Regulation Commission to conduct business of crude oil futures. Since China stands as the fourth largest oil producing country and the second largest one in oil consumption and import, maintaining a stable oil markets is essential to China’s energy and economy security. The kickoff of crude oil futures marks an important move in China’s internationalization of its capital market, and China will be a strong player in competing for the pricing power of crude oil within Asia-Pacific time zone.
7. Shanghai Clearing House starting centralized clearing business of RMB interest rate swap
Shanghai Clearing House started centralized clearing business of RMB interest rate swap in January. As an essential factor of the infrastructure in financial market, centralized clearing mechanism performed by central counter party will improve the efficiency and transparency of over-the-counter derivative market and mitigate systematic risks. The operation of centralized clearing business suggests that China has enhanced its intensive risk management capability in over-the-counter markets, and it is helpful to accelerate the liberalization of RMB interest rate.
8. Optimization of state-owned assets in financial sector
State-owned assets and enterprises in financial sector have embraced accelerating reforms in 2014, optimizing the integrated layout in financial industry, and international groups have taken a leading role in starting new operations. For instance, the city-owned insurance business, with China Pacific Insurance (Group) Co., Ltd. (CPIC) as a core player, has been wonderfully integrated. Anxin Agricultural Insurance Co., Ltd and Changjiang Pension Insurance Co., Ltd have been transferred to the CPIC’s management system, and state-owned equity has been withdrawn from Dazhong Insurance Co., Ltd. The reallocation of state-owned capital in such business has shown that the government is trying to optimize its management of business and allow the state-owned enterprises to grow more vigorously under market mechanism.
9. Fast development of private financial business
In August, China Minsheng Investment Co., Ltd was founded in Shanghai, a milestone in the development of China’s private economy. The same year also witnessed that Shanghai Huarui Bank, the first private bank in Shanghai, and Shanghai Life Insurance Co., Ltd, the first private insurance company registered within FTZ, acquired approval for establishment.
The emergence of private financial institutions will motivate the momentum and vigor of private capital, strengthen China’s multi-level financial system, improve the efficiency of financial market, better serve the medium, small and micro-sized enterprises, and benefit China’s real economy.
10. Formulation of policies and measures encouraging capital market, modern insurance business and internet finance industry
In 2014, Shanghai government fostered an array of policies to encourage the development of internet finance, capital market, modern insurance business and cultural finance. The municipality has made relentless efforts in optimizing policies, constructing credit system, and improving supporting services to create a financial environment featuring internationalization, market-driven mechanism and rule of law. Thanks to such efforts, Shanghai has laid a solid foundation to achieve the goal of developing the economy with financial services and improving the quality and efficiency of economic growth by shifting development approach, enjoying the highest reputation of a open financial market, standard market operations, and perfect credit system.