China, one of the reigning nations in the emerging category already showing its impetus to reach a global financial status with its robust machinery and services, is all set to launch Shanghai into a global financial hub. The driving force would be to include a more than double of trade volume in financial markets and greater openness to derivatives such as foreign-exchange products. Shanghai is considered China’s financial capital. However, the restrictions on foreign capital and government’s control over Yuan have acted as a limiting factor for the city’s global reach.
In order to uplift the financial quotient of Shanghai, China is trying to lower the capital barriers and release pressure on Yuan since the past two years. China’s efforts of promoting Yuan to international arena especially in sectors like trade and finance is its step towards lowering restrictions on foreign capital. Shanghai aims at becoming the top-tier international financial center (IFC) by 2020.
The current status of Shanghai is quite impressive. The main three onshore exchanges that includes equities, fixed- income instruments and commodities are the areas Shanghai’s financial markets have grown tremendously. Another aspect of China’s growth is the improved performance of Renminbi (RMB) which is not overshadowed by the stronger currencies like dollar or Yen. As far as the volume-commodity futures market is concerned, China boasts of holding the position of the second-largest market after the US, while Shanghai is ranked at the 10th position, followed by Dalian at the 11th and Zhengzhou at the 12th (year 2009). This is a major improvement since the year 2000 when Shanghai stood at the 29th position in terms of the volume.
Some companies like Goldman Sachs is reportedly anticipating that Shanghai might not culminate into an international financial destination instead can grow into a large domestic market. Apparently the city officials have a completely different view as they see Shanghai as an absolute center of the global economy; it can be both in capital markets, trade or commerce. The advantage that Shanghai has over other financial centers like Hong Kong and Singapore is the flexible regulatory regime.
China appears to act quite slow in an deliberate attempt of reform, which, apparently, can work towards the advantage of other regional financial centers with global aspirations. China has a clear regulatory demarcation across different sections of the financial market.
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Another challenge towards converting Shanghai into an IFC is the conversion of Shanghai into an attractive city for international financial experts to live and work. The taxation policy of Shanghai is quite stringent in terms of high tax imposition on the individual. The taxation on individual income can be up to 45% in Shanghai, in comparison to an income tax cap of 15% in Hong Kong. In terms of infrastructure, Shanghai claims to have one of the world’s largest public transit networks.