China Plans to Turn Shanghai into Global Money Center

By and | January 30, 2012

China laid out more specific plans to turn Shanghai into a global financial center by 2020, listing a series of targets for the next three years to make the city a hub for yuan trading.

The plan for Shanghai’s financial innovations through 2015 included establishing the central bank’s daily yuan fixing and the government-backed money rate as benchmarks in onshore and offshore markets.

It also aims to more than double the non-forex financial annual market trading volume to 1,000 trillion yuan ($158 trillion) by 2015.

The plans were published jointly on Monday by the country’s economic planning agency, the National Development and Reform Commission, and the Shanghai government as part of broader efforts to make the city a financial centre like London or New York.

But certain aspects were ambitious, some analysts said.

“This anticipated pace of development looks a bit quick to me,” said Frances Cheung, a strategist at Credit Agricole in Hong Kong.

She cited the plan to make the government-backed Shanghai Interbank Offered Rate (Shibor) the benchmark for yuan credit everywhere, which to succeed would have to replace the seven-day repurchase rate, the current benchmark.

“Shibor is not even a very well established benchmark onshore,” Cheung said.

The 2015 plan would make the daily yuan mid-point published by the central bank in the onshore yuan market serve as the benchmark for both domestic and foreign yuan trading markets.

Currency traders interpreted the statement partly as a message from Beijing that the yuan’s movements, which have increasingly been influenced by the offshore market over the past few months, should be decided by the government.

“There have been recent developments that have put Hong Kong’s offshore market in the spotlight from time to time, such as its pricing of the yuan quite differently from the onshore market,” said a trader at a European bank in Shanghai.

“In this sense, the NDRC statement is published at a sensitive time and means the government once again wants to emphasise that it has the final say in the value of the yuan.”

Analysts said the NDRC’s plan gave no fresh insight into how quickly China would liberalise its capital account, a crucial step in Shanghai’s attempt to become a global money hub.

Many analysts have assumed that the plan for turning Shanghai into a global financial centre, laid out by the State Council, the country’s cabinet, in 2009, is also a rough timeline for liberalising the tightly controlled currency.

Other aspects of the plan were more vague. It called for a multi-layer financial market system involving both domestic and foreign investors with relatively strong functions in trading, pricing and information delivery.

It would include gradually forming centres for yuan product innovation, asset management, shipping and financial services.

However, analysts did not see the plan as aimed at reducing the influence of Hong Kong as the main offshore yuan centre, largely because Beijing has promoted the territory’s role in offshore trading of the currency.

China has taken a series of measures over the past two years to invigorate the offshore yuan market in Hong Kong as part of a longer-term plan to promote the use of the yuan overseas and ultimately make it a fully-convertible and international reserve currency along with the U.S. dollar.

“Promoting Shanghai as an onshore yuan centre complements Hong Kong’s growing role as an offshore yuan center, and should help to strengthen the circle of onshore-offshore yuan flows underpinning the yuan trade settlement process,” said Donna H J Kwok, economist at HSBC in Hong Kong.

Earlier this month, Britain said it was teaming up with its former colony to secure London a top spot as an offshore trading centre for the yuan.

China will also encourage overseas companies to sell yuan-denominated shares in its domestic stock markets, but the plan did not give a detailed timetable.

Authorities have been discussing launching a so-called “international board” on the Shanghai stock exchange for listing foreign companies’ shares, seen as a centrepiece for the 2020 goal, but the city’s mayor said this month that the time was not currently right for its launch.

Shanghai will explore M&A opportunities involving overseas stock exchanges to increase its global clout, the NDRC’s plan said without elaborating.

(Additional reporting by Zhou Xin in Beijing, Saikat Chatterjee in Hong Kong and Lu Jianxin in Shanghai; Editing by Jason Subler and Neil Fullick)

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