Economy

Markets

Industries

Insights

Reports

Events

Shanghai reflects opening-up policy

By Wang Bo (China Daily)
Updated: 2009-11-02 08:41

The American International Assurance Co, Ltd (AIA) building in Shanghai's Bund is one of many overseas financial institutions to open offices in Shanghai, helping the city meet its goal to become a world financial center by 2020.[Agencies]

Walking on the Bund, Shanghai's historic waterfront, and looking across the Huangpu River at the gleaming skyscrapers in the Pudong District that houses many of the western financial giants, you can feel the pulse of change with the opening up of China's financial market.

Shanghai, the financial capital of China, is making a big push to attract multinational financial institutions to the city as part of its effort to become a world financial center by 2020.

From HSBC to Citigroup to Standard Chartered Bank, those looking to build a full range of retail businesses in the country chose to set up their China base of operations in Shanghai when China gradually lifted its restrictions on foreign financial operations after joining the World Trade Organization (WTO) in 2001.

As part of the effort to fulfill its WTO commitments, China eventually allowed a number of foreign banks to set up locally incorporated banking units in 2007.

Through these units, foreign banks can engage in renminbi business, issue bank cards to local residents and have access to rural finance businesses.

"Local incorporation has brought about greater opportunities for us to further develop in China and broadened our business scope and geographic reach," said Richard Yorke, president and CEO of HSBC Bank (China) Co Ltd.

HSBC, one of the first major foreign banks to obtain local bank licenses in 2007, has since launched renminbi retail services to local residents and further expanded its network to 90 outlets -- more than doubling the 35 outlets it had before local incorporation.

As of the end of last year, about 58 foreign bank branches and 27 locally incorporated foreign banks were licensed to engage in renminbi business, and 51 foreign banks were granted permission to do derivatives trading, according to the 2008 annual report of China Banking Regulatory Commission (CBRC), the nation's top banking watchdog.

Bank ties

The growing number of foreign financial institutions in the country's financial capital reflects the nation's drive to link its financial markets to the rest of the world.

"The opening of China's financial market has kept pace with the growing economic clout of the country. The nation's rapid economic development and increasing international business exchanges demand far more advanced financial services," said Zhao Xijun, a professor of finance at Renmin University of China.

By the end of 2008, four major Chinese banks -- the Industrial and Commercial Bank of China, China Construction Bank, Bank of China and the Bank of Communications -- attracted nine foreign strategic investors. The banks reportedly sought outside investors in a move to bring in advanced expertise in corporate governance, risk controls and financial innovation.

Bank of Communications partnered with HSBC, and the two banks currently have about 60 cooperative initiatives. Yorke said the Bank of Communications has issued more than 10 million co-branded credit cards with HSBC's technical and management support.

Chinese financial institutions had 60 foreign institutional investors with a total investment of $33.9 billion by the end of last year, even though the world financial crisis had forced some foreign investors to sell their holdings at the beginning of this year to help shore up their financial positions.

In a CBRC assessment on China's banking opening-up policy, it said the status of bank partnerships was consistent with the nation's current economic development, market growth and financial regulatory capacity.

The resilience of the banking sector has been significantly improved in the process without systemic risk, the CBRC reported.

Capital markets

On the capital market front, which was once deemed one of the country's least open sectors under the WTO, China has also taken big steps in its opening-up drive.

Related readings:  WTO ties rev up nation's growth  China's bank credit to rise in Q4: PBOC  First Eastern aims to pioneer QFII opportunity  Vital sign for securities market

It allowed international financial giants to buy into the Chinese A share market under a qualified foreign institutional investors (QFII) policy with combined investment quotas of $30 billion since 2003.

Under the policy, individual QFIIs can now buy between $20 million and $1 billion in A shares -- wider than the previous investment range of $50 million to $800 million.

Meanwhile, the lock-up period for insurance funds, pension funds and open-ended funds was cut from one year to three months.

By the end of July, China's securities regulatory body had granted QFII status to 86 foreign financial institutions and approved five foreign banks to do QFII custody business.

In another development, Fang Xinghai, director general of the Shanghai government's Financial Services Office, said in October that foreign companies would soon get the nod to list on the mainland stock exchange.

The nation's top securities regulator is reportedly preparing rules governing such listings and could approve foreign companies' domestic IPOs as early as next year.