On Shanghai’s strength & weakness

Shanghai’s resurgence as a global city is an experience other cities in the world would envy. Its trade heritage and geographic location merge to bolster its strategic position for modern-day business and finance. The city’s ambition is found in its focus to upgrade its business environment and develop sustainably.

Yet what will drive Shanghai toward becoming a true international financial center are its progressive policies and regulatory approach, steered by the steady hand of its forward-looking leadership. China’s commercial gateway is becoming a global gateway for growth. As Shanghai deepens and widens its financial markets, with strengthened capabilities to manage risk, it would also be expected to enhance financial diversification and market transparency, in order to deliver market efficiency.

Shanghai’s financial industry today boasts a healthy mix of cautious conservatism and bold ambition, enabling the city to stand at the forefront of China’s economic progress and financial innovations. The Lujiazui area in Pudong has quickly developed into a vibrant financial hub where the Shanghai Stock Exchange is based, along with the world’s most important financial institutions.

From our head office in Lujiazui, HSBC China continues to build on its financial capabilities and its nationwide network of more than 150 banking outlets reaching out to 50 cities. Our expansion also reflects and serves to support Shanghai’s financial influence emanating beyond the city to lead the country’s development and innovation in market-based instruments and financial mechanisms.

On yuan convertibility

China’s capital market is already attractive to foreign investors, showing steady progress and bright promise. Its bond market is valued at around US$4 trillion, making it the world’s fourth largest after the US, Japan and France — and is still growing, at around 30 percent a year.

Foreign investor schemes have seen accelerated liberalization in the past two years, opening access through widening, deepening or both. Quotas for the Qualified Foreign Institutional Investor (QFII) and the Renminbi QFII (RQFII) schemes continue to be raised, for example, while the China’s interbank bond market last year opened its doors to foreign insurers. Policy and policy statements signal continuing opening-up trends, rendering China’s capital market to become only more attractive to investors, both foreign and domestic.

Making the yuan fully convertible is integral to China’s exchange-rate reform, and steps are being taken to accelerate the opening of the country’s capital account. We expect full yuan convertibility to be realized within five years. That process and ultimate goal would contribute to significant financial markets development, with further deregulation, enabling banks like HSBC to widen our range of services for those investing in or trading with China.

Deregulated channels would open up greater onshore-offshore fund flows, such as through QFII, RQFII, QDII and yuan cross-border loans. Along with rising yuan trade settlement volumes, these developments would further benefit HSBC as we continue to leverage our global connectivity and yuan leadership to help foreign companies expanding in China and Chinese enterprises venturing out to overseas markets.

On free trade zone

HSBC looks forward to operating in the China (Shanghai) Pilot Free Trade Zone, after obtaining our entry approval last month. Expected to open early next year, our sub-branch in the pilot zone will initially focus largely on international banking services for corporate customers, and that scope will be expanded as the zone’s guidelines evolve. The new sub-branch would further extend our banking network, already the largest among foreign banks in China.

In fact, our presence in the Shanghai free trade zone will enable HSBC to leverage its global financial expertise and tap into a new spectrum of opportunities. We will look to fulfill customers’ growing demands for cross-border financial services and innovative financial tools, particularly relating to the yuan as it develops into a global currency.

On economic reforms

Shanghai’s recent economic and financial reforms have benefited two main goals — market diversification and liberalization. For HSBC China, they have opened doors for our continuing expansion in China, starting with our local incorporation six years ago.

Since that milestone, we have grown our network five-fold, while capitalizing on our position among the first foreign banks to join the Shanghai Futures Exchange, trade the interbank over-the-counter gold spot, underwrite corporate bonds in the interbank market with the execution of over 60 issuances, and roll out innovative services under the State Administration of Foreign Exchange’s pilot scheme to help multinationals centralize their foreign currency management — including cross-border netting, sweeping, and payments and collections. Our expansion in these and other ways have yielded further growth opportunities for customers and strengthened our support to market development.

Other advice

HSBC has been known as an emerging markets bank with strong focus on Asia, and Shanghai’s rise as a world-class financial center would further benefit our growth in China and the region.

We have invested greatly in our China business, growing our capital base, loans, assets and network to be the leading foreign bank. HSBC’s presence in China has been a significant contributor to the group’s profitability.

Now listed on five major global financial markets, HSBC desires to be, when permitted, among the first international companies to list in Shanghai. That would further deepen our roots in Shanghai, where HSBC was founded 148 years ago, and Shanghai’s emergence as a world-class financial center would further enable HSBC to extend our breadth of financial services to serve China’s rising consumers and outbound enterprises.

It would be welcomed to see Shanghai further realizing its bold ambitions as it takes great strides toward a more liberalized market, while applying prudence during uncertain global economic times. Its physical infrastructure for commerce and communication is impressive, and building up its financial infrastructure, with diversified financial tools and institutions, will help unleash the potential of its capital power.

Although financial centers such as London, New York and Hong Kong serve as good development models, Shanghai has a wonderful opportunity to shape its own destiny as a world-class financial center.

Further cultivating Shanghai’s services, research and development, and professional training industries will strengthen the city’s human capital and financial prowess, paving its path towards becoming a financial fulcrum for the nation, the region and the world.

Product innovation is what it will take for Shanghai to be more competitive versus the other international financial centers in the next few years.