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October 28, 2018

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The next phase of Shanghai’s development and China’s opening up

IN November, thousands of businesses from countries around the world will gather in Shanghai for the inaugural China International Import Expo. HSBC appreciates that connecting global companies and investors to China’s fast-growing economy is part of Shanghai’s DNA. For more than 150 years, we are proud to have played a role in helping Shanghai to become the gateway for trade and investment within China, and between it and global markets.

China has now, rightly in my view, decided that building a sustainable and inclusive economy — the goal set out at the 19th Party Congress — requires further opening up. The first ever Import Expo is an important symbol of China’s commitment to fulfil its role on the world stage. Reforms are continuing to liberalise China’s markets and the Belt and Road Initiative is greatly enhancing regional economic co-operation.

Shanghai is opening further as the theme of this year’s International Business Leaders’ Advisory Council makes clear, emphasising the actions needed to kick-start the next phase of the city’s development. The forward-thinking decisions taken over the past three decades have enabled Shanghai to open up at a remarkable rate. Through a series of further steps, Shanghai will build on its inherent strengths as an open and well-connected financial hub with a track record of embracing innovation, to capitalise on new opportunities and enhance its standing as a global financial centre.

While Shanghai unquestionably has the economic weight and mechanisms to draw in global investors, developing the capacity and diversification of funding sources required to make Belt and Road a success depends on the growth of local capital markets across Asia.

The China Securities Regulatory Commission has already signalled its intention to provide reforms, investment and support to enable this to happen. The Shanghai Stock Exchange is expected to play a prominent role by helping other Exchanges to develop. This work could be accelerated by the establishment of a Silk Road City Network, which would help to develop capacity and facilitate the sharing of information and best practice between cities.

Informal networks between cities already exist, but are often based on one-to-one relationships between individuals. A formal city network would be both more inclusive and effective. Shanghai is ideally placed to lead such a scheme because of its prominent role within the Belt and Road Initiative and the experience it has gained as a member of the C40 Initiative — the global network through which cities are formulating collaborative responses to climate change.

China is at the forefront of the global fight against climate change. President Xi’s commitment that the Belt and Road Initiative is green, low carbon, circular and sustainable, reflects the need to build physical infrastructure that can stand the test of time and support the transition to a low-carbon future.

Infrastructure projects offer excellent long-term opportunities for investors with reserves of capital searching for yield. However, because many projects have historically not been seen as investable, private sector investors have not taken much interest in infrastructure in the developing world. Investors need greater transparency, clarity and consistency so they know exactly what they’re investing in, can properly assess risk and easily compare the long-term viability of projects. Shanghai’s sophistication as a financial centre — and China’s leadership of the rapidly growing sustainable finance market — means that it is an obvious choice to lead the development of products and policies that will meet Chinese requirements.

Greater collaboration

An additional challenge is that investment in infrastructure is already a crowded space. In the green bond market alone, a series of different standards exists, including those set out by the International Capital Markets Association, Climate Bonds Initiative and the People’s Bank of China, as well as those of recipient countries and international investors. Shanghai could therefore act as an arbiter of existing standards. Its advocacy for specific standards has the potential to make them the de facto global expectations for sustainable investment.

While railways and bridges may be the landmarks of the Belt and Road Initiative, telecommunications networks and e-commerce markets will form the backbone of regional economic integration.

The use of new technologies across multiple jurisdictions offers the potential scale and choice that greatly benefit business and customers. The biggest threat to realising these benefits is the need to comply with different regulatory environments, along with limitations on cross-border data sharing. Greater collaboration between authorities on these issues is therefore required. This could be facilitated by following the example of initiatives like the UK regulatory sandbox, which enables safe and scalable experimental use of new technologies. Collaboration would also be served by encouraging the sharing of ideas between think tanks, universities and others in Shanghai and beyond.

In conclusion, Shanghai is the ideal venue for the China International Import Expo. Delegates will experience first-hand a city with a rich heritage as an international centre for trade, investment and commerce. Equally importantly they will see a city that is open to new ideas and willing to embrace innovation. HSBC has taken the opportunity of this historic 30th IBLAC session to propose three ways that we believe Shanghai can capitalise on China’s new role at the forefront of the global economy. Taken together, they could help to ensure Shanghai’s future is even brighter than its past.


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