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November 11, 2013

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Home » Business » Finance Special

Shao Zili - Chairman and CEO, JPMorgan China

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

On Shanghai’s strength & weakness

Shanghai has always been at the forefront of the evolution of China’s capital market, facilitating the optimization and reformation of China’s financial system. Shanghai has the strength to become an international financial center. The fast growth of the Chinese economy and the government’s support for financial reform have built the foundation. The regulatory development of yuan cross-border trade and settlement and yuan internationalization will be a key driver. In addition, the concentration of multinational corporations and financial institutions in Shanghai gives the city another strong advantage.

However, to become a global financial center, Shanghai needs to further address a number of issues, including attracting more high-quality talent with international experience and building a stronger regulatory system to support robust and healthy international business growth, while encouraging financial innovation.

On yuan convertibility

The full opening-up of China’s capital market will definitely be attractive to foreign investors in terms of financing in the yuan and investing in China. Despite the slowdown in the economic growth, China continues to be one of the fastest growing economies in the world. I believe investors around the world are keen to contribute to the growth of the economy and share in its success.

Full yuan convertibility will be an important step. From the macroeconomic perspective, if capital items are fully convertible to yuan and can be freely engaged in cross-border flows, it’s possible that more investment funds will move between China and overseas countries. In extreme scenarios, funding supporting the real economy might be further diversified and speculative activities could potentially increase. This situation can be more difficult to manage in developing countries such as China.

We do see capital items fully convertible to yuan as an opportunity for multinationals to continuously enhance their liquidity and financial management. Full convertibility could also facilitate large local corporates to expand more quickly by “going out” to develop their businesses in Asia or globally with a much more flexible liquidity management structure. At the same time, it’s also a challenge for each company to enhance its financial management and develop risk controls in order to accommodate the changes made by this type of deregulation.

On free trade zone

The recently launched Shanghai free trade zone is the latest milestone. Overall, the pilot reforms within the zone comprise four areas: trade, investment, finance, and government administration. Financial reforms within the zone not only support broader reform within the free trade zone but also to provide a platform to gain experience that could be replicated later throughout the rest of the mainland.

On economic reforms

Shanghai is a city with high concentration of foreign investment and multinational presence. Shanghai is also piloting advanced regulations aimed at helping corporates develop their businesses and continuously create a favorable environment for attracting investment. The advanced regulations in Shanghai cover different areas, with yuan cross-border trade being one of the important examples in recent years.

As one of the first pilot cities to kick off yuan cross-border trade settlement since 2009, Shanghai has been a leader in issuing and executing new yuan cross-border solutions.

Along with yuan foreign direct investment and overseas direct investment policies, yuan cross-border lending and yuan centralized payment and collection have become pilot solutions that were first approved in Shanghai prior to the new regulation issued in July 2013. These solutions can facilitate corporates to enhance their cash management and liquidity management across different countries and regions to a large extent.

Shanghai has the most sizable, mature and sophisticated corporate client base in China. In the near or mid-term, we would like to see cross-border payments be even more convenient to improve efficiency. Meanwhile, we realize that a drastic change may cause problems or negative consequences, especially in such a large economy. Therefore, a phased approach or pilot mechanism can be further explored and expanded.

Other advice

Shanghai needs to not only carry out open and friendly business and financial policies to attract international investors but also to attract, foster and retain high-quality talent, and reinforce a stable regulatory environment with a strong rule of law.

Both the public and private sectors are supportive of Shanghai’s ambition to be an international financial service center by 2020.

Finance Special


 

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