Shanghai’s 2020 International Financial Centre Goal Hindered by Capital Controls, RMB Inconvertibility, Opaque Regulation and Low Internationalisation Go back »

2019-12-12 | Shanghai

Shanghai’s 2020 International Financial Centre Goal Hindered by Capital Controls, RMB Inconvertibility, Opaque Regulation and Low Internationalisation

12th December 2019, ShanghaiA survey released today by the European Union Chamber of Commerce in China reveals that although Shanghai’s financial ecosystem has made positive advances in recent years, the city will not reach its goal of becoming an international financial centre by 2020. The main issues holding Shanghai back are the continuation of capital controls, the lack of renminbi (RMB) convertibility, several ongoing regulatory issues and low internationalisation.

Conducted by the European Chamber’s Shanghai Chapter, the survey shows that 42 per cent of the senior banking executives surveyed believe that Shanghai will eventually become an international financial centre. However, significant challenges in Shanghai’s financial ecosystem remain: for 65 per cent of those surveyed, Shanghai’s financial regulatory system is simply less specific, less transparent and less consistent than in other international financial centres, such as London and New York, with opaqueness and a history of arbitrary government interventions in the market having eroded confidence. For instance, not a single respondent believes that securities are accurately priced in China, and only 12 per cent believe that corporate credit in China is accurately priced.

A significant 85 per cent of respondents point to regulatory obstacles as an impediment to growing their China business. An even higher percentage state that Shanghai is over-regulated and three quarters of respondents rank licensing processes as more difficult compared to other international financial centres. Meanwhile, China will need to more than triple its current foreign bank market share to reach the minimum level of 5 per cent, as expressed by a majority of respondents.

However, survey respondents also recognise that two significant issues impeding Shanghai in its ambitionsthe lack of RMB convertibility and the continuation of tight capital controlsmust be tackled steadily to avoid serious negative consequences in both domestic and world economies. The European Chamber therefore recommends that Shanghai focusses more immediately on instituting a transparent regulatory system in order to stay on the right path, while taking a relatively more gradual approach to full internationalisation of its financial system.

“Although Shanghai has certainly moved towards its goal of becoming an international financial centre, it is just not there yet,” said Mr Carlo D’Andrea, chairman of the Shanghai Chapter.

“Only removal of capital controls and RMB convertibility can bestow the title of international financial centre upon Shanghai,” said Mr Thilo L. Zimmermann, national vice chair of the European Chamber’s Banking and Securities Working Group. In the meantime, the European Chamber sees many other opportunities for further improvement to make the city’s financial services system more advanced, transparent and accessible.”

Download the report here.

 

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Yichi Zhang