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Building Shanghai into global finance center
By Sun Lijian |
May 27, 2009, Wednesday
|
Print Edition
Print Edition
THE global financial tsunami triggered by the United States has raised China's awareness of the fragility of its export-oriented economy as well as its imbalanced industrial structure.
This has prompted China to consider better alternatives for value creation and wealth management. In my view, the key lies in restructuring China's industry.
Generally speaking, the upper end of the industrial chain is characterized by innovation, designing and standard setting. It is the initial stage of industrial development that is crucial to value creation in the future.
Once a new product has created value in the market, it will bring huge profits for countries with strong pricing power.
The mission of the middle part of the industrial chain is to transform ideas into products that will bring happiness and safety. This is characterized by large-scale production and manufacturing.
The advantage of low production cost in China has enabled it to become the world's factory.
However, as this part of the industrial chain lacks the pricing power and is highly substitutive, price competition is critical to either developing or maintaining a large market share.
The lower part of the industrial chain is about realizing the value of products. Logistics, marketing as well as finance are representative here.
As it is the last part of an industrial chain, it usually has the biggest say in profit distribution.
China is now in the middle part of the industrial chain.
The lack of pricing power and industrial core competitiveness limits China's ability to make profits.
To achieve the objective, China needs to develop its finance industry to support industrial innovation.
Technology innovation and the development of a mature, healthy financial market are interdependent, as proved by the prosperity of the US NASDAQ (National Association of Securities Dealers Automated Quotations) stock market and the strength of Japan's main bank system.
China has already announced the strategic plan of developing Shanghai into an international financial center. This can be approached by encouraging technology innovation.
Besides ensuring an effective market mechanism to develop promising enterprises, the government should nurture and introduce large number of professional investment teams to invest in promising innovative enterprises.
The final objective of the financial center construction strategy is to achieve the internationalization of the yuan. It's unsafe for China to put most of its fortune in dollars.
Hence the inevitable trend of the internationalization of the yuan.
However, given the immature conditions for yuan internationalization at present, Shanghai's current job is to focus on the development of the modern service industry.
By providing high-quality service in such industries as shipping, trade and finance, as well as creating comfortable living and working conditions, Shanghai will gradually promote yuan trade settlement.
(The author is professor of finance and executive vice dean of the School of Economics at Fudan University.)
This has prompted China to consider better alternatives for value creation and wealth management. In my view, the key lies in restructuring China's industry.
Generally speaking, the upper end of the industrial chain is characterized by innovation, designing and standard setting. It is the initial stage of industrial development that is crucial to value creation in the future.
Once a new product has created value in the market, it will bring huge profits for countries with strong pricing power.
The mission of the middle part of the industrial chain is to transform ideas into products that will bring happiness and safety. This is characterized by large-scale production and manufacturing.
The advantage of low production cost in China has enabled it to become the world's factory.
However, as this part of the industrial chain lacks the pricing power and is highly substitutive, price competition is critical to either developing or maintaining a large market share.
The lower part of the industrial chain is about realizing the value of products. Logistics, marketing as well as finance are representative here.
As it is the last part of an industrial chain, it usually has the biggest say in profit distribution.
China is now in the middle part of the industrial chain.
The lack of pricing power and industrial core competitiveness limits China's ability to make profits.
To achieve the objective, China needs to develop its finance industry to support industrial innovation.
Technology innovation and the development of a mature, healthy financial market are interdependent, as proved by the prosperity of the US NASDAQ (National Association of Securities Dealers Automated Quotations) stock market and the strength of Japan's main bank system.
China has already announced the strategic plan of developing Shanghai into an international financial center. This can be approached by encouraging technology innovation.
Besides ensuring an effective market mechanism to develop promising enterprises, the government should nurture and introduce large number of professional investment teams to invest in promising innovative enterprises.
The final objective of the financial center construction strategy is to achieve the internationalization of the yuan. It's unsafe for China to put most of its fortune in dollars.
Hence the inevitable trend of the internationalization of the yuan.
However, given the immature conditions for yuan internationalization at present, Shanghai's current job is to focus on the development of the modern service industry.
By providing high-quality service in such industries as shipping, trade and finance, as well as creating comfortable living and working conditions, Shanghai will gradually promote yuan trade settlement.
(The author is professor of finance and executive vice dean of the School of Economics at Fudan University.)
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