Shanghai’s ‘Lujiazui Forum’, an annual financial conference, has identified four key objectives to hasten the process of building the city into a global financial centre by 2020.
First and foremost, it needs to further develop its financial capital markets. Given that Shanghai already covers major asset classes – such as currencies, bonds, securities, gold, equities, commodities and options – the ratio of direct financing opportunities will need to be increased. This will not only create a more international environment for capital markets, it will also speed up the construction of multilayer capital market mechanisms.
Second, it is vital for Shanghai to attract as many financial institutions as possible and create a more relaxed political and economic environment for them. Foreign firms in China still face various challenges in terms of business development and operations models. In order to make Shanghai more attractive to international financial institutions, it is extremely important for Shanghai to have more supportive and transparent systems so these firms feel there are more advantages and fewer risks involved in moving to China.
Third, Shanghai needs to be more creative in developing financial products to suit the appetites of global investors. One of the conclusions that the Shanghai municipal government reached during the Lujiazui Forum is that the city has to develop bond and equity markets for direct financing in the future.
This echoes the confirmation that the launching of an international board in Shanghai is getting ever closer. Any bona fide international exchange in financial capitals such as New York, London and Hong Kong facilitates full access to all kinds of international securities. This sort of high level of freedom and autonomy in capital markets will allow investors in Shanghai to have the same access to investment tools and operations as their peers in other financial centers.
Finally, China needs to prioritise the internationalisation of the RMB. Of course this will not happen overnight. In order to achieve the target, China needs to take three steps. First, the RMB has to become freely convertible globally in economic projects and capital investments. Second, it must have a more diversified functionality. And third, China needs to demonstrate a pattern of fiscal stability and predictability such that the RMB is seriously considered as a reserve currency in international markets.