Shanghai and Hong Kong. One is the Chinese mainland's financial center and the other an international financial hub. Both of the cities are Chinese and their financial development was greatly impacted by colonialism. When Shanghai proposes that it wants to develop into an international financial center, people naturally compare the two cities.

It is said that today's Hong Kong is yesterday's Shanghai. A century ago, when Shanghai was the well-known international financial and trade hub of the Far East, Hong Kong was relatively lagging behind. Currently people tend to believe that Shanghai's tomorrow will surpass Hong Kong today, though that still may be a few years away from realization.

In terms of tangibles, Shanghai's Lujiazui Finance & Trade Zone resembles the finance street central Hong Kong.

However, there is still a huge gap between Shanghai and Hong Kong in terms of intangibles. "Shanghai is laying its foundations," said Hu Zuliu, head of Goldman Sachs Greater China Research. "In the short term, Shanghai cannot pose a real challenge to Hong Kong's status as an international financial hub."

Hu believes the gap between Shanghai and Hong Kong is huge. Hong Kong embraces a vast and a reputable global banking system, while Shanghai is still striving to reform the state-owned system of the Chinese banking industry. Moreover, the market value of the Hong Kong stock market far outpaces that of Shanghai. Compared with the mainland market, the Hong Kong stock market is more popular with investors. This kind of stereotype cannot vanish overnight. Although Shanghai has built many skyscrapers for financial institutions and seems as prosperous as Hong Kong, Hu says that this kind of prosperity is actually real estate prosperity, not financial prosperity.

The favorable conditions of Hong Kong include the rule of law, open markets, transparency, the free flow capital and a convertible currency. It will take Shanghai a much longer period of time to catch up with that of Hong Kong regarding such intangible construction. Shanghai needs to learn a lot from Hong Kong regarding supervision, product innovation and company management.

Hu believes that Shanghai's financial industry should be further opened and that both interest rate and exchange rate should be further marketized. Meanwhile, the currency market construction still lags behind and the financial market liquidity and convertibility are weak; the quality of supervisory personnel and technology needs to be advanced; the level of transparency of financial institutions and markets remains low; financial information development is slow; financial intermediary institutions' capabilities are inadequate; and there is a serious lack of high-quality financial personnel. All the setbacks mentioned above seriously restrict Shanghai from faster development. Most importantly, the fact that the Chinese currency yuan cannot convert freely is an obvious barrier to Shanghai's development as an international financial hub.

"That's why I said Shanghai has a long way to go before it can become another international financial center as Hong Kong," said Hu.