International Finance Center

International Finance Center

Building Shanghai into an international finance center is a significant strategy made by the Party Central Committee and State Council in the early nineties of last century with the full consideration of China’s reform and opening as well as the construction of the modernization. After over ten years’ efforts, Shanghai international finance center has got great achievements, basically establishing itself a domestic financial center and laying a good foundation of further acceleration of the promotion of international finance center. In April, 2009, the promulgation of 《Suggestions of the acceleration of the development of modern service and advanced manufacturing industries and the construction of international financial center and shipping center》by the State Council (Document[2009] NO.19), (referred to as the State Council,《Suggestions》) represented the beginning of a new era of the construction of Shanghai international finance center.

1 Progress of the Construction of Shanghai International Financial Center

1.1 Establishment of Relatively Completed Financial Market System

At present, Shanghai has basically built the financial market system comprising stock, bond, currency, foreign exchange, commodities futures, financial futures and OTC derivatives, gold and property markets. Like London and New York City, Shanghai is one of a small number of financial centers in the world with completed market types. Shanghai is also at top rank in term of the scale of financial markets in the world. In 2008, the turnover in Shanghai Stock Exchange was 18 trillion Yuan, ranking seventh in the world, second in Asia, and share financing amounted to 223.8 billion Yuan, ranking eighth in the world, second in Asia; In Shanghai Futures Exchange, natural rubbers traded 9.3 trillion Yuan and copper’s turnover was of 9.96 trillion Yuan, ranking the world’s first and second place respectively; In Shanghai Gold Exchange, spot gold traded 869.6 billion Yuan with the volume of the spot gold traded in exchange ranking the world’s first. As of the end of 2008, the market value of Shanghai Stock Exchange reached 9.7 trillion Yuan, ranking sixth in the world, Asia’s second; the value of securities depositories in the inter-bank market was of 13.9 trillion Yuan, ranking sixth in the world.

1.2 Comprehensive Financial System

Shanghai has currently established comprehensive financial system comprising commercial bank, security, insurance, fund management and trust, future, financial leasing, currency broker and auto financing companies. By the end of 2008, there were 899 financial institutions in Shanghai, among which, 198 were institutions of bank category, 384 were institutions of insurance category, 92 were institutions of security category and 225 were representative offices of foreign financial institutions.

1.3 The Financial Opening-up in Shanghai is at Forefront of the Country

By the end of 2008, 395 foreign and Sino-foreign financial institutions gathered in Shanghai, accounting for 44 percent of Shanghai’s total, in which, 17 foreign banks’ headquarters were located in Shanghai, accounting for 53 percent of the country’s total number and their consolidated assets accounted for 84.8 percent of the country’s total; 7 foreign corporate financial insurance companies located their headquarters in Shanghai, accounting for 61 percent of the country’s total; More than half of the joint-venture insurance and fund management companies focused on Shanghai.

1.4 Flourished Development of Funds and Assets

Managements Business

By the end of 2008, 30 fund management companies were located in Shanghai, accounting for 49 percent of the country’s total, with management assets of 620 billion which accounts for one third of the country’s total; Insurance asset management companies in Shanghai accounted for 60 percent of the country’s total number, holding more than a half of assets under management of the insurance industry; Moreover, China’s private equity investment fund, QFII, QDII, and private banking business was also concentrated in Shanghai. At the same time, relying on the national inter-bank markets, Shanghai has also attracted many fund operations centers, notes business centers and other institutions of domestic and foreign banks to settle in Shanghai.

1.5 Continuous Optimization of the Financial Development Environment

In 2007, the leading group focusing on the promotion of the construction of international financial center, Led by Han Zheng, mayor of Shanghai, was established to provide favorable environment and supporting services from local level for the construction of the international financial center, which held “Lu Jiazui” Forum successively in the last two years, further expanding the influence of Shanghai international financial center. Meanwhile, the construction of finance law, social credit, intermediary and financial infrastructures have been also promoted vigorously.

2 Overall Objectives and Major Tasks

2.1 Overall Objectives《Suggestions》formulated by the State Council pointed out the overall objectives of the construction of Shanghai international financial center: By 2020, Shanghai aims to basically establish the international financial center compatible to China’s economic strength and international status of RMB; basically form the diversified market system, with joint participation of both domestic and foreign investors, which is trading, pricing and information-featured and at a high degree of internalization; basically form the financial institutions system, which not only makes the institutions possessing international competitiveness and industrial influence as mainstay, but also provide common developing opportunities of various types of financial institutions; basically form the financial human resources system with reasonable structure and a complete range of types; basically form the financial development environment internationally competitive and in line with the development of international practices of tax, credit, regulatory and other legal systems.

2.2 Major Tasks In accordance with the overall objectives of the construction of Shanghai international financial center, four major tasks include: First, strengthening the construction of the financial market system. Shanghai will continually enrich the financial products and instruments to promote the coordinated development of bond market and launch the financial derivative products based on share index, exchange rate, interest rate, stock, bond and bank loan steadily. It will also accelerate the development of the future market, launch new commodity future products of energy and metal, set up the transfer board mechanism among listed companies of different markets and levels, optimize the participate structure of the financial market and actively develop investors of security and social security fund, insurance asset, annuity and trust scheme, as well as develop reinsurance market in Shanghai. Second, strengthening the construction of financial institutions system. To meet the demand of the construction of financial market system, Shanghai will expand various kinds of financial institutions vigorously through the promotion of experimental areas of qualified financial enterprises, cultivation of the financial holding groups with comprehensive operating capabilities and the encouragement of the development of equity-invested enterprises and venture capital companies. Meanwhile, cross-agency, cross-market and cross-product financial services will be also developed to expand the financial business. Moreover, we will also promote the opening of financial service industry steadily and support the increase of the openness of joint venture security and fund companies.

Third, upgrading the service quality of financial service. Shanghai will vigorously develop electronic transaction to promote connection between financial information system and market trading system. In order to complete the regulation of financial services, the modern financial supporting system serving for the market transactions will be further improved. In addition, the intermediary service and the service platform of financial information should also be developed and established respectively. Fourth, improving the environment of financial development. Shanghai will strengthen the financial legal system, accelerate the formulation of financial taxation and legal systems coherent to the actual situation in China  and in accordance with international practices and environment, establish efficient, fair and impartial arbitration mechanism to improve the financial law enforcement system, strengthen the building of the social credit system to promote the credit information sharing as well as continuously improve the financial regulatory system, establish closed to the market, innovative, information sharing and risk-controlled financial regulatory platforms and systems.

3 Related supporting policies and regulations

After the promulgation of 《Suggestions》, Shanghai municipal government attached great importance to identify the recent focuses on promoting the construction of the international financial center and formulated a series of documents such as《Suggestions about Further Promotion of the Reform and Development of Shanghai’s Financial State-owned and Municipal Financial Enterprises》(HWF[2009] NO.11) and 《Provisions of Shanghai Municipality on Gathering Financial Resources, Improving Financial Service and Promoting the Development of Financial Industry》(HFF [2009] NO.40). Standing Committee of Shanghai Municipality also issued 《Provisions of Shanghai Municipality on the Promotion of International Financial Center》, striving to provide a favorable environment for the construction of Shanghai international financial center.

3.1 The formulation of 《Suggestions about Further Promotion of the Reform and Development of Shanghai’s State-owned Finance and Municipal Finance Enterprises》(Referred to as 《Several Suggestions》 The main content includes four aspects: First, defining the guiding ideology, basic principles and main objectives of the promotion of the reform and development of Shanghai’s state-owned finance enterprises;《Several Suggestions》indicated we should adhere to the basic principle of “Advancing and Retreating Appropriately, Activating the Stock to Attract Increment and Being Cooperative and Results-oriented” to promote the reform and development of Shanghai’s state-owned finance enterprises. After 5 years’ efforts, we are supposed to achieve three main targets: (1) attracting a number of major domestic and foreign financial institutions to settle in Shanghai and cultivating several municipal key financial enterprises prominent at main businesses and nationally influential to expand the financial institutions system. (2) building municipal financial enterprises into modern financial enterprises comprising adequate capital, strict internal control, creativity, as well as good service and benefits. (3) further developing the important role of financial state-owned assets in the service of Shanghai’s economical and social development and the construction of Shanghai international financial center through the establishment of a unified and coordinated financial state-owned assets management system, strengthening the supervision of financial state-owned assets management and promoting its layout optimization. Second, deploying the optimization of the strategic layout of the development of Shanghai’s state-owned financial assets. Focusing on promoting the overall layout of Shanghai’s financial state-owned assets towards two directions , (1) attracting more financial resources to gather in Shanghai through the restructuring of famous financial institutions; (2) fostering a number of prominent and influential companies. Third, proposing main measures to enhance the marketing competitiveness and sustainable development of municipal finance enterprises. It includes the improvement of corporate governance structure and management of directors, deepening of the reform of human resource system and establishment of a new mechanism for managing the distribution of income, etc. 《Several Suggestions》also indicated to implement market-oriented wage allocation in suitable enterprises and that enterprises leaders with different configurations will implement the classified management of remuneration. Fourth, strengthening the leadership of the reform and development of the state-owned financial assets. According to《Several Suggestions》, Shanghai SASAC will entrust the City Finance Office to fulfill the responsibilities of the investor to state-owned financial institutions. City Finance Office in accordance with relevant regulations and supervisory duties will strengthen its coordinated management of municipal financial enterprises in terms of strategic management, risk control and corporate governance structure.

3.2 The formulation of 《Provisions of Shanghai Municipality on Gathering Financial Resources, Improving Financial Service and Promoting the Development of Financial Industry》. The supporting measures of attracting financial talents and institutions and encouraging the financial innovation includes four aspects: First, increasing strengths of encouraging and serving financial talents. Shanghai will provide personnel incentives to financial talents who make a significant contribution to the construction of Shanghai international financial center, which include handling the city domicile, providing residence permits, social insurance continuation, health insurance, child schooling and other facilitation measures; Meanwhile, Shanghai will also speed up the apartment building of financial talents, provide leasing services and establish training base for financial talents. Second, supporting the development of new financial institutions. To the branches of foreign financial institutions which are converted into a foreign legal entities registered or moved to Shanghai, Shanghai will provide a one-time start-up support funds; In addition, to these foreign-funded financial institutions with new registrations and new movement in the city, Shanghai will give a one-time support funding, and in five years of its opening or moving, financial institutions which are qualified in terms of operating performance, industry position and asset quality indicators will be given to the special and appropriate funds. All kinds of operating centers of large financial institution establishing a new registration or a new move into the city can be guided by the Executive. For the above-mentioned two types of financial institutions in establishing or moving into office five years, which purchases its own rooms for business in five years of its opening, the real estate transaction fees can be levied by half and the institutions can get 50 percent of land charges according to the amount of deed tax payable. Third, encouraging the development of financial innovation. Shanghai will establish financial innovation prize to encourage the financial innovation of various kinds of financial institutions in the financial products, technology, service, management and other areas. Fourth, improving the layout of space for the financial industry. In accordance with the land use plans of municipal departments and the county, City Finance Office will study and formulate the detailed plan of regional development to promote the rational distribution of space for the city’s financial development and provide land services to the construction of financial institutions.

3.3 The formulation of 《Provisions of Shanghai Municipality on the Promotion of International Financial Center》The main content includes six aspects. First, the construction of financial market system. The related departments are demanded to cooperate with national financial authorities to promote financial market system, optimize the structure of market participants, and develop various types of institutional investors, fostering an internationally competitive and influential financial institutions. Second, the construction of regional distribution and infrastructure. Shanghai will strengthen the planning and construction of finance concentration areas including Lujiazui Financial Area, the Bund, etc., improve the spatial layout of the city’s financial industry and enhance the load and service functions of finance concentration areas. Third, the construction of financial talents environment. The relevant departments should formulate the developing, cultivating and introducing plans of financial talents to build and improve a market-oriented evaluation mechanism of human resource compatible with the construction of the international financial center. Fourth, the construction of credit environment. Relevant departments should cooperate with the international financial regulatory authorities in the building of a unified credit information platform for financial services industry to expand the coverage of credit information collection and the amount of data to improve the credit information inquiry services. Fifth, the construction of innovation environment of financial industry. Shanghai is supposed to encourage financial institutions’ innovation in terms of financial products, technology, services, management, organizational forms, etc. innovation. Sixth, the prevention of financial risk and the construction legal environment. The coordination with the country’s financial management authorizes is encouraged to establish and improve financial supervision and coordination mechanism, perform the regulatory functions legally, improve the regulatory system and strengthen cross-industry and cross-market supervision and coordination.

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