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November 11, 2013

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Home » Business » Finance Special

Larry Chen - Country Head, China, Fidelity Worldwide Investment

Source: Shanghai Daily | November 11, 2013, Monday | Print Edition

On Shanghai’s strength & weaknesses

In recent years, Shanghai has made significant infrastructure investments, which will help the city realize its goal of becoming an international financial center. The overall quality of the workforce is high, and government policies and economic development have attracted a lot of talented people from overseas. Clearly, human capital is an integral part of an international financial center.

However, compared with other international financial centers, Shanghai still has room to improve.

First, Shanghai will need a more diversified stock market. This is not purely a Shanghai issue, but a broader issue in terms of how the capital market is being developed in many developing countries. From Fidelity’s point of view, we would like to see a more diversified investor base in the Shanghai A- share market. We believe this would reduce stock market volatility and, in return, allow it to grow in size and importance in the eyes of international investors.

Secondly, further internationalization of the yuan will help Shanghai to gain preeminence in the global financial market. We believe that wider usage of the yuan in global transactions will be extremely beneficial for Shanghai. We can see similar development patterns in the US, where New York has benefited from the global position of the US dollar for many years — even until today. The Chinese government has gradually broadened the use of the yuan worldwide — in Hong Kong, Singapore, Taiwan and London.  We are confident that full conversion will take place sooner than most people think. If you take a look at the recent government announcement on the Shanghai free trade zone, it is very clear that this initiative will expedite the internationalization of the yuan.

There will have to be continued improvements in a number of other areas, including legal standards and the development of the asset management industry, for Shanghai to be successful in its bid to become an international financial center. Lastly, it is also our belief that we will need to start nurturing the general investing public, by improving their investment knowledge. The continuous development of the QFII, QDII and Hong Kong-mainland mutual funds recognition schemes will also serve as a catalyst.

On yuan convertibility

In our discussions with clients globally, many of them believe that China still offers one of the most attractive investment profiles in the world — particularly in the medium to longer term. With the QFII quota expansions, institutional investors are eagerly applying for new or additional quotas. We believe that capital inflows from RQFII and QFII show strong demand on the part of foreign investors for investing in Chinese capital markets. As a foreign company that obtained QFII credentials early, Fidelity Worldwide Investment currently has a US$300 million QFII quota, and we have plan to apply for a bigger quota as our global clients continue to seek exposure to the Chinese capital markets.

Furthermore, the free convertibility of the yuan will be a catalyst for the growth of the Chinese capital market; it is crucial for foreign investors to be able to transfer their funds freely around the world. Yuan convertibility would improve the environment for foreign investment and operations, increase foreign investor confidence and better align China’s foreign-exchange policy with the rest of the world.

On free trade zone

The opening of Shanghai’s free trade zone will bring about changes in finance, tax, trade and general government policies. These new policies would create a platform for developing cooperation with other countries and establishing new channels for economic growth.

To facilitate trades and investments, we strongly believe that financial services companies — including asset managers — should have a key role in the overall development of the zone in order to create a strong and sustainable eco-system.

On economic reforms

Fidelity’s China strategy has always been to focus on supporting key government initiatives and facilitating the development of the asset management industry in China. Therefore, we see substantial opportunity for Fidelity to participate in the free trade zone and play a leading role. The fact that we established a representative office in Shanghai in 2004 and a Beijing representative office in 2008 is already a clear validation of our commitment to China. In addition to our two representative offices, we also have an operational center in Dalian that houses over 300 staff supporting our business regionally and globally.

Other advice

A company would definitely benefit a great deal from development of Shanghai into a world-class financial center, such as more opportunities in business development, higher-quality talent, more freedom and good technology support and open policy from the government. In order for Shanghai to become an international financial center, a center of the national financial system and an integral part of international financial markets, I think Shanghai requires the following key elements.

1. Strong economic foundation. An international financial center must be supported by a strong economic foundation and stable economic growth.

2. Good financial market structure and an open and free market system. For Chinese and international financial institutions, open and free market systems reduce entrance costs.

3. Internationalization of the yuan. Clearly a freely convertible currency will help the overall development of the trade and financial environment.

4. Promote innovation without losing an active oversight system. We strongly believe that innovation and oversight should go hand in hand. Furthermore, we also have a strong belief in improving the education of end-investors.

5. A large pool of top, local talent.

The biggest advice would be not to try and run before you can walk. Small steps will lead to successful development.

Finance Special


 

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