May 15,2009

Shanghai Receives Support From Beijing, But Needs More "Animal Spirits"

By CSC staff, Shanghai

While Shanghai is making the Lujiazhui Forum an annual event for top Beijing financial officials to come and express their support and share ideas to support Shanghai’s ambition, Governor Zhou Xiaochuan of the People’s Bank of China says Beijing also needs to work to preserve Hong Kong’s status as an international financial center. 

While supporting Shanghai’s aspirations to mold itself into a full-service financial powerhouse has gained consensus among decision-makers in Beijing, Hong Kong has been lobbying very hard for equal treatment and the central government has been cautious not to downplay the southern metropolis. "We will co-ordinate Shanghai and Hong Kong’s roles, avoiding conflict from competition. The policy is to promote their mutual complementarities."

Shanghai has been criticized for its passivity, waiting for support or favor from the central government. Zhou would like the city to display a bit more "animal spirits." "While excessive risk-taking can lead to crisis, China’s investors also need to avoid risk-aversion. China encourages innovation, which is impossible without taking risk."

Shanghai needs to prepare itself for the risk a financial center may incur. "A financial center draws risk. When financial crisis comes, a financial center is always hit hard. You need to look at NYC and London now." He might also have mentioned Hong Kong, which has weathered many financial ups and downs and always come back stronger.

Liu Mingkang, Chairman of the China Banking Regulatory Commission, adds that, "Risk management does not mean full risk aversion. Banks need to pursue risk-adjusted return. For Shanghai banks to jump out, they need to take the lead in managing risk.

Recently, the State Council, the cabinet of the Chinese government, stated (again) that it supports Shanghai’s efforts to build an international financial center, mainly in the Pudong district, which recently acquired a adjacent coastal country.

China is awash in money due to its high savings rate. China needs to efficiently transfer its huge savings to investment, including overseas investment. Zhou suggests that Shanghai serve investment funds aimed at investing both domestically and overseas. "China will accelerate the development of funds. Shanghai should play an important role as the headquarters of investment funds."

Shanghai’s capital market is developing quickly. According to Chairman Shang Fulin of the China Securities Regulatory Commission, the A-share market of the combined Shanghai and Shenzhen Stock Exchanges has become the third largest capital market in the world in terms of the market capitalization. And the Shanghai Exchange by itself has become the fourth largest, after only New York, London, and Tokyo.

With Shenzhen ready to launch a Growth Enterprise Board, Shanghai is trying to build a international board, attracting foreign companies to list, and such companies with extensive business and long-term commitment in China as HSBC and Fortescue Metals Group (FMG), the third largest iron ore miner in Australia, have expressed keen interest.


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