Download On the Road to Becoming a Financial Centre (September 2005)

CHINA Ruby News
Ruby Zhu, China Economist of the Hong Kong General Chamber of Commerce. Email: [email protected]
Vol IV, No.9 September 2005
Shanghai: On the Road to Becoming a Financial Centre
lthough Shanghai has been proclaiming itself
as an international financial centre for some
time, growth of its financial sector lags behind
that of its manufacturing sector. In 2004, the
city’s financial industry grew at a rate of 6.1%, far
lower than the overall economic growth of 13.6%.
Shanghai’s manufacturing industry is growing
rapidly, as the municipal government wants to
expand the economy. The recently launched
"Project 173," a planned industrial park covering
173 sq km of suburban Shanghai, aims to lure big
manufacturers from around the world. The
municipal government's vision for Shanghai is to
turn the city into an international financial, trade and
navigation hub. Let's look at differences between
Hong Kong and Shanghai in terms of financial
development, as well as examine how the two cities
can cooperate.
A
The recent opening of a Shanghai branch of the
People's Bank of China highlights the Central
Bank's recognition of Shanghai as the financial hub
of China. In 2004, the financial sector's contribution
to GDP was about 10%, compared with Hong
Kong's 12.6%. Therefore, Shanghai still has much
room for growth. The financial sector in Hong Kong
mainly serves manufacturing companies in the PRD,
in the same way that Shanghai's financial sector is
meeting demand from the Yangtze River Delta. Any
financial centre should have a comprehensive
network of agencies providing intermediary services
and mature credit systems. It should provide a free
and easy platform where transaction costs are the
lowest possible, transaction volumes are the largest,
yet at the same time efficiency is very high.
Hong Kong, as the Asian financial centre, has 211
accredited financial institutions of which 186 are
foreign, which combined operate 1,295 outlets here.
Among the world's top 100 banks, 70 have
branches in Hong Kong. Shanghai by comparison
has only 65 foreign financial institutions, which
clearly shows it needs to further internationalize its
financial market. The financial sectors of both cities
cooperate closely. For the banking sector, HSBC,
Hang Seng Bank and Bank of East Asia now
operate 5, 4 and 3 branches in the Mainland
respectively.
A number of small- and medium-sized banks will
also enter Shanghai under CEPA in the near future.
In Hong Kong, non-traditional banking services,
such as property management, risk management
and investment services, are growth areas, while in
Shanghai, these services are in their infancy. Under
CEPA III, Hong Kong banks can expand the scope
of renminbi services that they can offer individuals
in the Mainland. This presents new opportunities for
Hong Kong banks to grow in the Mainland and will
further boost the development of Shanghai's
financial industry.
Shanghai is still developing its capital market. Due
to historical reasons, the potential for the Mainland
stock market to raise capital has yet to be fully
released. In 2004, Shanghai stock market
transactions totaled $3.8 trillion, compared to Hong
Kong's $3.95 trillion. The amount of capital raised
from the stock market was even less -- stock
markets in the Mainland (including Shenzhen stock
market) raised ¥151 billion last year, while Hong
Kong raised HK$281.4 billion. Hong Kong's
well-developed market of derivative products
enhances its market liquidity. In 2004, almost 20
million stock options and futures transactions were
recorded, up 35% on the previous year. Shanghai's
capital market needs to improve its regulations and
framework if it is to raise investors' confidence.
Considering the high level of savings (40%) in
China, Shanghai's role as a financial centre will
start to materialize when people prefer to invest
more rather than to save.
Shanghai still has a long road to travel before it
becomes a true financial centre. How fast it travels
will hinge upon the efforts of the municipal
government, as well as the Central Government’s
financial policy and monitoring. Meanwhile, to inject
vitality into the Mainland’s financial market, the
Central Bank will maintain talks with the Hong Kong
Monetary Authority and release control on the
capital market in stages.
www.chamber.org.hk