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The View | Shanghai can be made a global financial hub – if China fixes some fixable problems

  • With one year to go before the deadline, Shanghai still doesn’t have what it takes to be a global trading centre. China’s plans for Shanghai are going the way of its other promises: it talks about being open but keeps markets controlled

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China announced in 2009 its plan to transform Shanghai into an international financial hub by 2020. But a recent poll has found members of the American Chamber of Commerce in Shanghai do not believe the Shanghai 2020 goal will be achieved. Photo: Xinhua
American companies had high expectations when China announced in 2009 its plan to transform Shanghai into an international financial centre by 2020. It wouldn’t be easy. While centres like London, New York and Tokyo have the infrastructure and legal environment needed for traders, asset managers and global banks to execute transactions, China had a non-convertible currency, a closed internet and other characteristics inconsistent with a global trading centre.

Still, there was cause for optimism. Although China had been dragging its feet on commitments made during its accession to the World Trade Organisation, in many ways the economy was moving steadily in a more liberal direction, with increasing levels of integration with the rest of the world. With less than a year left before the 2020 deadline, the American Chamber of Commerce in Shanghai polled members to measure China’s progress. While all surveyed agreed that China had made great strides in elevating Shanghai, the vast majority did not believe that the city would be a global financial hub by 2020.

Asked to rank factors that could thwart the plan, respondents first cited capital controls. The unfettered movement of capital is fundamental to any international financial centre. But also notable was a litany of other concerns that executives cited as barriers to China’s 2020 ambition. Many of these misgivings echo those of businesses operating in other industries.
A hurdle second only to capital controls is arbitrary government intervention in China’s stock markets, the most egregious and recent example being the government’s intercession during the stock market meltdown of 2015-2016. Measures included instructing state-backed institutions to buy shares and forbidding major investors to sell shares for six months.

Other factors impeding China’s progress towards its Shanghai 2020 goal include a lack of consistent and transparent application of laws. Indeed, when asked about the Chinese mechanisms for handling commercial disputes, half the respondents described them as neither fair nor transparent.

The fear that regulators’ decisions are subordinated to political expediency does little to boost Shanghai’s credentials. Nor does political opacity help, be it around judicial decisions or the practice of “window guidance” – unofficial instructions Chinese banks receive sooner than their Western peers.
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