With the approval of the State Council, the People's Bank of China and other eight other departments have jointly issued the Action Plan for Shanghai's Construction of International Financial Center 2018-2020 (hereinafter "Action Plan"), which mentions that by 2020, Shanghai will become a strong financial resource based on RMB products. The city will also achieve its global financial market position that has strong financial resource allocation and radiation capability, establishing itself as an international financial center that is compatible with China's economic strength and the international status of the RMB. This means that Shanghai will be at the forefront of the global financial center, striving to make itself an international financial center with a "6+1" pattern by 2020.
The "6+1" pattern refers to the construction of the centers of global asset management, cross-border investment and financing service, financial technology, international insurance, RMB asset pricing and payment clearing center, and the financial risk management and stress testing. These centers would form a "world-class excellent financial ecosystem." It is clear that the long-term goal of Shanghai's future development is to aim for becoming the global financial center.
With strong domestic support, Shanghai has been relatively robust in the construction of its financial market system. Currently, Shanghai has gathered a variety of national financial markets including stocks, bonds, currencies, foreign exchange, bills, futures, gold and insurance. Chinese statistics show that in 2018, Shanghai's financial market turnover totalled RMB 1645.8 trillion, a year-on-year increase of 15.2%. The international rankings of financial markets such as stocks, bonds, futures and gold have increased significantly, and the trading volume of multiple products rank among the top in the world. In recent years, various international, headquarters, functional financial institutions and new financial institutions have also accelerated their presence in Shanghai. As of the end of 2018, the total number of licensed financial institutions in Shanghai reached 1,605, an increase of 469 from the end of 2011.
The relevant authorities in Shanghai said that the construction of Shanghai as an international financial center is still facing many challenges. Shanghai has some shortcomings as one of the world's most important international financial centers. The main issues faced are that while Shanghai is big, it is not strong enough. In addition, although it has complete market functions with large transaction volumes, there are not sufficient varieties of products. Shanghai also lacks in the overall global market pricing power and the right of expressing itself, and its degree of opening-up and internationalization needs to be further improved. As a global investment and financing center, the role Shanghai plays in the world is insufficient, causing its international influence to not be strong enough. In addition, its soft environment for financial development that attracts the accumulation of financial talent needs further optimization.
How should we evaluate Shanghai's efforts to develop itself into an international financial center? Anbound believes that although Shanghai has made great efforts towards its goals, it is not a true international financial center. An international financial center must look at the construction of the market system, but it depends on its influence and control in the international financial market. In this regard, although Shanghai has larger scale in some financial market transactions, its influence in the international financial market is still not as strong as Hong Kong and Singapore, not to mention Tokyo, London and New York.
There is a number of indicators and systems to measure international financial centers, yet Anbound's Chief Researcher Chan Kung pointed out that if looking at the issues through such indicators dogmatically, that would still not necessarily be the key of international financial center. In his view, the definition of an international financial center is global currency competitiveness. Whoever possesses the most competitive currency in the world will be the real financial center. The largest financial cities in a country with such a competitive currency will be the mecca of the world financial community. If other cities in the world are self-proclaimed to be "financial centers" with world influence, that would be mere bluff.
Judging from this principle, Chan Kung believes that from the perspective of international politics and monetary competitiveness, our world has only one "systemically important financial center", which is the United States and its main financial city, New York. There is no country or city in the world that can compare with it. In the foreseeable future, New York will continue to be a systemically important international financial center. From the perspective of financial trading activities, there will be several financial centers in the world, such as London, Paris, Frankfurt and Tokyo, which are determined by the scale of the world's financial activities. From the market perspective, there can be more financial centers. As long as the market is relatively large, there will be financial transactions that follow, so there can be important financial cities, such as Shanghai in China.
It should be noted that currency competitiveness and influence is a key component of globalization, and the reverse is equally true. Globalization is a key pillar of currency competitiveness and influence. The strong influence of the dollar on the world lies first and foremost in the great influence of the United States on the world. This also means that in the future, if conflicts and competition intensify, and if the United States has held on to its implementation of the "American First" isolationist policy and detached itself from the world, this will greatly limit its influence and reduce the global competitiveness of the dollar. This would then reduce the status of the dollar, affecting or even downgrading the status of the financial center in the United States and New York. The outcome is that the world would be led to subversive influence, and may return to the "financial multi-center" pattern, that is, several financial centers in New York, London, Paris, Frankfurt and Tokyo. These financial centers will replace the previous financial status and responsibility of New York in a more parallel and balanced way.
Then, in this adjustment of the world's structure, does Shanghai have the opportunity to upgrade in the "financial system" to become an international financial center? This actually does not depend on Shanghai, not even China's efforts. Rather, it has to do with the global financial landscape changes. It should also be pointed out that even in areas where China and Shanghai are theoretically likely to work hard, they will still face great challenges in actual development. Such issues include whether China's capital projects are truly open, whether the RMB is freely convertible, or whether the influence of the Chinese economy is sufficient for the RMB to become an influential international currency. Even if these reforms and opening-up have been achieved, they will face long-term development and competition in the international financial market.
Final analysis conclusion:
Whether Shanghai can become an international financial center does not depend on Shanghai alone, nor does it only depend on China's efforts. Instead, it depends on the evolution and adjustment of the global financial landscape. In the "system" that underlies the international financial center, Shanghai may be more confident that it will become a financial market center through the Chinese market space.
