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January 27, 2010

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Financial innovation set as a priority in work agenda

Shanghai is set to carry out innovation in new financial products, companies and markets as priorities in its work agenda this year as the city embarks on its journey to develop into a leading global financial center.

"Shanghai will boost its financial industry to propel the local economy and improve the economic structure," Mayor Han Zheng said in his work report yesterday at the Shanghai People's Congress.

Building up financial markets and introducing more innovative schemes and products will be priorities on the city government's agenda for Shanghai's bid to be a global financial hub, he said.

The Shanghai Municipal Development and Reform Commission outlines several proposals this year in a release to local lawmakers yesterday. They include a study on allowing commercial banks to trade bonds on the Shanghai Stock Exchange and accelerating the implementation of an "exempt-and-tax" program for individual pensions.

The "exempt-and-tax" program is one of Shanghai's innovations under guidelines from the State Council, China's Cabinet, to build the city into a major financial hub by 2020.

The program is an incentive for people to buy retirement policies by cutting their tax payment in China where commercial insurance penetration is still low. It will exempt policyholders from paying tax on pensions when they buy the policies. They pay tax only when they ultimately withdraw the benefits and in this way leads to a lower tax payment. The practice is popular in Western countries.

"Shanghai has done its preparation for the trial, and we're now awaiting the go-ahead from the central government," said Sun Guodong, a deputy to the SPC and Party Secretary of the Shanghai Bureau of the China Insurance Regulatory Commission.

Sun said he expects the program to start within this year. He also pointed out that a community insurance program, which offers home property insurance for families, now covers the whole city and will be further consolidated this year.

China UnionPay, the country's sole bank card clearing firm, will further broaden its network in Shanghai to play a bigger role in boosting domestic consumption and the local economy. The World Expo 2010 is an opportunity for the firm to consolidate China's bank card industry.

Shanghai has more than 400 overseas financial institutions, accounting for almost half of the total in the city. Twenty overseas banks have set up their local incorporation in Shanghai, accounting for two-thirds of the nation's total.

Financial market development:

Start preparations for the credit trade market;

Start preparations to allow commercial banks to trade in the bond market of the Shanghai Stock Exchange;

Research on setting up a market to trade equities of non-listed companies;

Accelerating the bills market and insurance market.

Financial institutions development:

Trial of universal financial institutions;

Setting up consumer credit companies;

Attracting more joint venture brokers and fund management companies and local incorporation of overseas banks in Shanghai.

Financial products and services development:

Trials on allowing financial leasing companies to issue bonds;

Speeding up trials on "exempt-and-tax" program for individual pensions;

Launching new futures products at an appropriate time;

Improving a guarantee system for smaller businesses to have access to credit;

Encouraging small loan companies and rural banks.

Financial opening-up:

Encouraging joint venture funds and brokers to expand business scope;

Pushing forward the program of allowing overseas banks locally incorporated in Shanghai to issue yuan bonds onshore;

Pushing forward the program of allowing overseas companies to get listed or issue bonds onshore.


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