The stock market boom last year put Shanghai in the map of world markets, but
that's only half the story of the journey the city has embarked on
to emerge as a global financial center to rival New York and
London.
While the world was fixated on the bulls and bears in the
Shanghai stock exchange, the city made great strides in its quest
of this global status, from playing host to international banks to
expanding its commodities market, with the China Financial Futures
Exchange putting the final touches for the launch of the mainland's
first index futures contract.
In November, Shanghai Mayor Han Zheng laid down the road map for
the international financial center goal: put in place the necessary
infrastructure by 2010 and achieve the status by 2020. To that end,
the municipal government has established a high-profile task force
headed by the mayor.
An international consultancy committee has been formed under the
task force with powerful figures in the financial sector to guide
the authorities. These include central bank chairman Zhou Xiaochuan, former World Bank president
James D Wolfensohn, Nobel laureate Joseph Stiglitz and leaders of
China's banking, securities and insurance watchdogs as well as
senior executives of financial institutions.
"Getting the initiative moving, including the setting up of the
task force, is one of the most significant steps made by Shanghai
in 2007 to become an international financial center," says Lu
Hongjun, chairman of the International Financial Centers
Association.
"The year 2007 saw more integrated moves by the central and
local governments on the ambitious plan, which was raised to a much
higher national strategic level," says Lu, who also serves as the
president of Shanghai Institute of International Finance.
Shanghai's capital market saw rapid development last year. The
Shanghai Stock Exchange (SSE) now ranks sixth in the world and
third in Asia in terms of market capitalization. Its total market
capitalization soared to 25 trillion yuan, while the annual
turnover increased nearly 400 percent to 28.57 trillion yuan ($3.93
trillion) by the middle of December. There are 857 companies listed
on the Shanghai exchange, 822 of which have completed share
reforms, accounting for 96 percent of the total market
capitalization.
Geng Liang, chairman of SSE, says the exchange is entering an
important period of development. "We will strive to build the stock
exchange into a more standardized and open world-class bourse. We
aim to cultivate the blue-chip market."
Thanks to the booming stock market and the red-hot Chinese
economy, 855 companies listed on the exchange posted a 73.8 percent
increase in net profit to 512.3 billion yuan in the first nine
months of last year, surpassing 320.2 billion yuan for the whole of
2006. The aggregate revenue of these 855 companies rose 43.7
percent to 4.35 trillion yuan.
Following the China Securities Regulatory Commission's call to
prevent irregularities, SSE released new rules for stock trading in
September to curb insider trading, excessive speculation and price
rigging.
The exchange launched a new index on the governance of
China-listed companies on January 1, the first to evaluate
corporate governance in the country. Zhu Congjiu, general manger of
SSE, says: "We will take measures to improve corporate governance,
and it's a long-term task."
SSE is now stepping up efforts to create a more diversified
market, improve the market's money-raising capacity and speed up
the development of the fixed-income security market, including
corporate and national bonds.
Foreign banks
The influx and impressive growth of foreign banks in the past
year have greatly enhanced the city's expertise in a wide range of
financial businesses. Their newfound local status, which gives them
an equal footing as their Chinese peers, has boosted their efforts
to launch innovative products in both retail and corporate banking.
Since four foreign banks were locally incorporated in April, a
dozen have been approved to set up local entities in Shanghai.
The government's planning has played a crucial role in nurturing
the growth of the city's financial sector. The introduction of the
Shanghai Interbank Offered Rate (Shibor) last year laid the
foundation for enabling the country's monetary authorities to
achieve macro-control indirectly by adjusting the benchmark
interest rate rather than maneuvering the money supply.
Landmark efforts in 2007 also included the expansion of an
integrated system to record personal and corporate credit
histories, which helps improve the city's credit environment and
reduces financial risks. More than 600,000 enterprises and 7
million individuals have been included in the system.
Great achievements have been made in Pudong New Area - home to
476 financial institutions and a zone that will play a crucial role
in making Shanghai's global dream come true. The GDP of its
financial sector accounts for one-sixth of the area's total, a
level similar to other international financial centers. By 2010,
more than 600 financial institutions are expected to have
operations in the area, employing 200,000 people in the finance
industry, whose GDP is likely to exceed 18 percent of the
total.
"The focus will be on the capital market, and we'll make great
efforts to attract asset management companies," says Sun Wei, a
sub-director of the area's financial service office.
Financial information providers, such as law firms, accounting
firms and professional rating companies will also be targeted this
year.
Commodities market
Last year witnessed giant leaps in the domestic futures market
with the introduction of five new futures contracts - zinc,
rapeseed oil, palm oil and chemical products PTA and LLDPE - on
Dalian, Zhengzhou and Shanghai commodity exchanges.
Compared with the other two exchanges, Shanghai bourse is
playing a particularly crucial role in developing this market. Last
year, the total turnover of all contracts on the Shanghai Futures
Exchange (SHFE) amounted to 21.76 trillion yuan, up 72 percent from
the year before. It accounted for no less than 70 percent of the
combined volume of futures transactions on all the three commodity
exchanges.
Cooperation with foreign exchanges helps SHFE hone its
competitiveness and exert increasing influence in the international
futures market. In November, SHFE inked a deal with Central Japan
Commodity Exchange to collaborate in a wide range of fields,
including information sharing, staff training, product research and
development, and market promotion. SHFE President Yang Maijun says
the exchange will seek more such alliances and expand its product
range.
After launching gold futures last week, SHFE is working on other
new contracts, including nickel, silver and steel futures, in the
years to come.
Beginning from late October, China Financial Futures Exchange,
where the proposed CSI300 index futures is to be traded, has
approved 52 futures companies as the exchange's members to trade.
This is widely seen as a major step toward the launch of the
mainland's first index futures.
Talent scarcity
But there is one major hurdle in Shanghai's race to the top.
Officials, scholars and company executives in financial service
sectors point out that the city needs to have a pool of highly
skilled professionals if Shanghai is to achieve its goal of
becoming an international financial center.
"Talent is at the core of this endeavor," said Tu Guangshao,
former vice-chairman of China Securities Regulatory Commission now
vice mayor of Shanghai at a recent summit of China Financial
Talents Strategy. "It takes 10 years to grow a tree and a hundred
years to bring up a generation of quality people," he said,
stressing the importance of specialized education and cultivation
of specialized experience for finance professionals.
In a survey of 40 CEOs, Chen Wei, China president of global
management consultancy Hay Group, says the biggest challenge for
Shanghai in competing with other financial centers lies in its
scarcity of talent. Compared with the United States, which has
approximately 25,000 people with Chartered Financial Analyst
certificates, there are only dozens of them in China. That's far
behind even Hong Kong or Singapore that have about 1,000 such
professionals each.
"Most of China's businesses in the financial sector are
incapable of producing global leaders," says Chen.
As Yan Qingmin, sub-director of the China Banking Regulatory
Commission, puts it, "wisdom" comes ahead of "system".
(China Daily January 14, 2008)
