On Shanghai’s strength & weakness

Shanghai is already a financial center. It houses a large number of financial institutions, both domestic and international. It has a diversified financial services industry encompassing banks, insurance companies, securities companies, fund management houses and commodities firms, as well as various exchanges including the Shanghai Stock Exchange. The overall administration of Shanghai is competent, business-friendly and supported by good infrastructure. These are all inherent strengths of Shanghai as a financial center in the second-largest economy in the world.

As Shanghai bids to become an international financial center, the focus should be placed on further enhancing the international component of Shanghai’s financial services. This would mean more reforms in line with the policy direction of the central government and the continuation of attracting international participation in Shanghai and through Shanghai in China.

The financial industry in Shanghai is vibrant. It also has very strong linkage with the real economy in China. The industry structure is quite diversified, with different types of financial services providers based in Shanghai. The size of the financial industry, albeit still mostly a domestic one, is large. It has been catching up over the years with other major financial centers in terms of financial vitality. What goes on in Shanghai often becomes the focus of international attention.

On yuan convertibility

The capital market in China is developing and presents tremendous opportunities to both domestic and foreign participants. These opportunities are appealing to issuers, investors and service providers. China is moving toward the direction of having more financial pillars in its financial industry in addition to the existing banking markets. The capital market, in our view, will become an important pillar. When it is fully opened up, the capital market will increase in importance as issuers are looking more toward the capital market to raise funds and investors are looking for different types of instruments for portfolio diversification and returns. Above all, the Chinese economy is expected to continue growing at a robust pace.

Foreign participation in the Chinese capital market is still limited. That said, the international community is eager to participate. There is genuine demand for the yuan internationally, as witnessed during the process of the yuan internationalization over the last few years.

We believe that a fully convertible yuan under the capital account will enhance business opportunities for all financial institutions, including Citi, and it will allow China to further integrate into the global economy.

As the yuan becomes fully convertible and as China continues to integrate into the global economy, the demand for cash management, wealth management, risk management and other services will increase.

On free trade zone

We are excited about the pilot free trade zone in Shanghai, and Citi is honored to be the first global bank to receive regulatory approval to prepare to set up a sub-branch there. With the largest global network among international financial institutions, we will connect the free trade zone with the rest of the world, and vice versa.

We have been working with many of our global clients to promote the free trade zone, and we will provide our full range of services to our clients to help them take advantage of what the free trade zone has to offer. During this process, we will also provide constructive feedback to the regulators and the government to help ensure the success of the zone.

We believe the opportunities in the free trade zone are meaningful, and when the pilot programs in the free trade zone are rolled out to the rest of the country, the opportunities will be vast.

On economic reforms

Shanghai indeed has a good track record on innovation and reforms. Citi China has enjoyed the benefits of being headquartered in Shanghai since it first established in 1902, over 110 years ago. What has been most helpful to our business is the ability of the Shanghai government to fully utilize the economic reform policies of the central government to create the right environment to attract and retain financial institutions. Their sustainable strategy has allowed businesses, including international businesses, to flourish in the long run.

We believe the most helpful reform to us in recent years was the permission for foreign banks to become locally incorporated banks in 2007. We are now able to provide more services to this huge market.

Going forward, we expect the reform policy to continue. We look forward to further reforms in areas of financial liberalization. We also look forward to participating in the development of Shanghai into an international financial center.

Other advice

Citi China is anchored in Shanghai, and our interest and the interest of Shanghai as a world class financial center are aligned. So as Shanghai develops into a world class financial center, the benefits to a multinational company like Citi are many-fold. We believe that in order to benefit from the city, we have to contribute to it by leveraging our capabilities as the most global financial institution in terms of geographical coverage. Just as we have done for other economies around the world, we are keen to continue working hand-in-hand with the Shanghai government to help Shanghai become a world-class financial center.

We believe Shanghai has what it takes to become a world class financial center. That pursuit will need further internationalization of financial services. Hence, continuous reform and opening are necessary. To this end, the pilot free trade zone provides the government a good opportunity to achieve this objective, and we have seen how eager international financial institutions are in contributing to this effort.

Shanghai has an excellent track record and we have every reason to believe that Shanghai will become a world class international financial center.

We hope to see China continue to open up and deepen its reforms so that financial and legal systems will be more aligned with international standards.