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July 31, 2009

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Shanghai success benefits everyone

SHANGHAI officials say the central government's decision to transform the city into a global financial center on a par with the likes of New York and London doesn't threaten the cities in China or across Asia who harbor similar goals.

Indeed, Shanghai's ambitions could enhance the fortunes of business centers throughout the region.

"Shanghai should serve as a platform to promote cooperation and healthy competition among east Asian countries," said Shanghai Vice Mayor Tu Guangshao, who is in charge of the city's economy.

"This is definitely not an undesirable race to see who gets such a title," he said. "If Shanghai becomes a global financial center, it benefits the surrounding areas, the country, and the east Asian region."

Shanghai is already the commercial center of China. It is home to the nation's major stock exchange, international banking, commodities trading and foreign-exchange administration.

The task for Shanghai is to develop its prowess to compete directly with more mature Asian commercial centers, such as Tokyo, Seoul, Singapore and Hong Kong. On the Chinese mainland, Beijing and Shenzhen are among the cities also seeking to strengthen their credentials in finance.

The decision by the State Council, China's Cabinet, to designate Shanghai as a future global financial center comes as the tide is shifting toward Asia. Longtime financial hubs, such as New York and London, are suffering the effects of the global financial crisis, and China is trying to shield itself from over-reliance on financial systems in the United States and Europe.

Fang Xinghai, director of the Shanghai Financial Services Office, said the city could offer unique benefits.

"Shanghai is the window to China, a massive inland market waiting to be tapped," he said.

Shanghai hosts China's biggest stock market and major futures and gold markets. "These are the indispensable elements for a city to become a major financial center," Fang said.

"China's strategic decision to turn Shanghai into a global financial center doesn't preclude the roles of other cities. Different cities may play different roles in China and in the world," he added.

Gao Hongmin, an economics researcher at the Shanghai Academy of Social Sciences, said the global financial crisis had underlined the urgency of closer cooperation within east Asia so that the hard-earned wealth created by member states doesn't evaporate in a US dollar-dominated system. "Amid the crisis, it has become increasingly unreasonable to transfer most of our wealth into assets of the United States, especially when the emerging east Asian countries are in huge need of capital to develop themselves," Gao said. "We don't lack demand. We don't lack supply. What we lack is the initiative."

With growing trade and fund transactions between the Chinese mainland and other countries, the need China to establish a strong, cross-border financial center is increasing.

The central government has signaled it is willing to provide incentives to promote Shanghai's ambitions and to allow the city to explore innovative market reforms.

According to the Shanghai Financial Services Office, transactions on the Shanghai Stock Exchange, the Shanghai Futures Exchange and the Shanghai Gold Exchange all rank among the top 10 in the world.

Closer collaboration

"China, as the world's third-largest economy, needs a financial center commensurate with its powerhouse status," said Gao.

The debate over whether Shanghai or Hong Kong should wear that honor has been raging for years.

In Gao's view, coordination and communication between Shanghai and Hong Kong is vital to the interest of both cities.

"Closer collaboration would be very helpful to the promotion of the yuan as an international currency," he said.

At present, Hong Kong is striving to become an offshore financial center for yuan trading and a more competitive global asset-management center. Shanghai can learn from Hong Kong to speed up its financial innovations, Gao said. At the same time, Shanghai can serve as an access for Hong Kong to China's vast inland markets.

Mainland cities also have a role to play in the development of Shanghai as a global financial center, Gao said.

As the economic engine of the Yangtze River Delta region, Shanghai's financial strength depends heavily on the performance of surrounding areas. The demand for modern financial services will flourish as inland areas develop.

On a wider regional level, discussions among east Asian countries about the need to adopt a regional currency hold promise for stronger trade and financial ties, according to Lawrence Lau, a professor of economics at the Chinese University of Hong Kong.

"The region should have a currency in common to reduce the risk of fluctuation in the current system, which is dominated by the greenback and the euro," said Lau. "And the yuan should be among the candidates."

Cooperation among east Asian nations began in earnest after the Asian financial crisis in 1997. A fund of US$120 billion has been established under the Chiang Mai Accord to deal, if needed, with any emergencies arising in the region.

The region has also increased bilateral swap agreements and enhanced high-level communication among member states under the framework of the Association of Southeast Asian Nations.

Earlier this month, three Shanghai-based firms became pioneers in a trial project to use the yuan to settle cross-border trades. Under the program, the trio signed contracts worth more than 14 million yuan (US$2.05 million) with companies in Hong Kong and Indonesia.

The program's launch in Shanghai reflected the central government's determination to build the city into a global financial center by pressing ahead with financial innovations and market reforms, according to earlier reports.


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