Over the past five years, Shanghai became home to a number of financial institutions. As the number of commercial banks, securities companies, insurance companies, fund management companies and futures companies increased, various functional and innovative financial institutions have been set up, such as micro-lending companies, financing guarantee companies and equity investment companies.

The financial innovation capability of Shanghai has been greatly enhanced. Important innovated businesses such as the launch of renminbi settlement for cross-border transactions and the bonded delivery of futures have improved the city's financial service capability. Strength of Shanghai's financial institutions is improving. By the end of 2010, the aggregate assets of all financial institutions had reached 14 trillion yuan ($2.23 trillion), up 1.9 fold from 2005.

To be improved

The NDRC said the unsound market mechanism, weak innovation capability and the current level of openness restricted the construction progress of Shanghai into a global financial hub.

The city still faces limited types and a number of institutional investors and a relatively small category of financial products and tools. Furthermore, it needs to improve the function of resource allocation of its financial market, enhance the international competitiveness and influence of its financial institutions, raise the internationalization level of the financial industry, and further improve its environment in the fields of the financial legal system, taxation, credit, supervision and human resource services.

These problems should be solved through accelerating the reform and opening up of the financial industry as soon as possible.

How far exactly is Shanghai from classification as a genuine international financial hub?

Yi Xianrong, a researcher at the Institute of Finance and Banking of the Chinese Academy of Social Sciences, thought as for talent, infrastructure and technologies, Shanghai is actually not far behind New York and Tokyo—the world's two largest financing hubs. The gap now comes more so from the monetary policy.

According to Yi, to build Shanghai into an international financial center, three requirements need to be met: let the renminbi go abroad; let offshore renminbi be used for all businesses like other free convertible currencies; and let overseas institutions and individuals participate in and expand trading in overseas renminbi markets.

Sun Lijian, Deputy Director of the School of Economics at Fudan University, said the NDRC plan does not incorporate the foreign exchange market, which unleashed a signal that the Central Government doesn't have plans to open the exchange rate and renminbi free convertibility under capital account.

"Not considering discussions of talents, infrastructure and technologies, just because of capital controls, Shanghai's renminbi market is unlikely to become a major global financial hub before China fully opens free convertibility of the renminbi," Sun said.

There is far more that Shanghai needs to accomplish to be a global financial hub. Major disadvantages in the minds of foreign investors with eyes on Shanghai include: Chinese law is quite conservative in allowable types of financial products to be traded, and many complicated financial products, especially financial derivatives, are prohibited within China, making it difficult for Shanghai to tap the potential in leading China's derivative trading. In addition, global use of the renminbi is limited, and Shanghai's service industry still cannot meet the demand of building an international financial center.

Shanghai's Goals

- Scale of the financial market: By 2015 the trading volume (excluding foreign exchange market) will reach 1,000 trillion yuan ($158.98 trillion), among the top of major world financial markets.

- International influence: By 2015 the number of foreign investors in Shanghai's financial market will be remarkably increased; the influence of major index of the Shanghai Stock Exchange and bulk commodities futures in Shanghai will be greatly enhanced; the inter-bank offered rate will become a major benchmark interest rate for domestic and overseas renminbi asset pricing; the middle price of renminbi exchange rate will become the major benchmark exchange rate for pricing of domestic and overseas renminbi transactions; and the market share of foreign-invested financial institutions in Shanghai will be further increased.

- Financial service functions: By 2015 Shanghai's financial market will contribute 22 percent to the city's total direct financing and manage 30 trillion yuan ($4.77 trillion).

- Financial development environment: By 2015 the number of people engaged in the financial industry of Shanghai will reach 320,000, and the number of high-end financial professionals and talent in emerging financial sectors will be greatly increased; international competitiveness of the financial development environment will be remarkably improved, and financial laws, taxation and supervision will be more closely connected with international practices.

Major Measures

- Accelerate improving the financial market system by expanding the financial market in both breadth and depth.

- Attract financial institutions with international competitiveness and industrial influence and further improve the structure of financial institutions.

- Establish global renminbi payment and clearance networks in Shanghai and support the financial market to strengthen infrastructure construction.

- Deepen the financial reform, and establish a financial innovation mechanism.

- Enhance the capability of financial institutions to offer global services and accelerate renminbi settlement business for cross-border trade and investment.

- Strengthen the legal environment in Shanghai and formulate financial laws.

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