Top 10 Events of 2012 in Building the Shanghai International Financial Center
The Shanghai Branch of Xinhua News Agency, the Shanghai headquarters of the Xinhua Financial Information Platform and China Business News jointly selected the top 10 events of 2012 marking work to transform Shanghai into an international financial center.
1. Twelfth Five-Year Plan provides guidance for the financial center
Event: In early 2012, with consent of the State Council, the National Development and Reform Commission issued the Construction Plan for the Shanghai International Financial Center for the 12th Five-Year Plan, which drew favorable responses both at home and abroad.
Remark: The plan defined clear goals for the construction of the Shanghai International Financial Center. Its guidance serves as the compass for work to transform the city into an international financial hub.
The objectives of the plan include: use of global financial hubs as benchmarks, development of a comprehensive system of financial services, escalation of innovation efforts in the financial sector, strengthening of Shanghai’s profile in global markets, and reinforcement of the goal of making Shanghai a global center for yuan product innovation, trading, pricing and settlement by 2015.
The plan also listed major tasks toward building Shanghai into an international financial hub. They included expanding the breadth and depth of financial markets, attracting and nurturing institutions with global competitiveness and influence, building a cross-border yuan payment and settlement center, accelerating financial market reform and innovation, creating a cross-border yuan investment and financing center, and fostering an environment for the globally competitive development of the financial industry.
2. Direct yen-yuan trading provides multiple choices
Event: China’s interbank market launched directing yuan-yen exchange on June 1, 2012. The market reacted positively, and a smooth operation began.
Remark: Direct “dialog” between foreign exchange markets in Shanghai and Tokyo was begun – the yuan’s first direct trading with a major currency other than the US dollar. It marked a milestone in the removal of the yuan’s peg to the greenback and assisted the Chinese currency’s process of internationalization.
Direct yen-yuan trading benefits both China and Japan because it reduces foreign-exchange costs and risks, and enhances facilitation for bilateral trade and investment. In addition, closer currency cooperation between China and Japan will benefit the formation of a balanced international monetary system.
3. Investment reflux to the domestic market expands bond market
Event: In early March 2012, the first group of Renminbi Qualified Foreign Institutional Investors (RQFII) were allowed to tap into the interbank bond market. By the end of October in the same year, there were 20 RQFIIs in the interbank bond market. The World Bank and foreign insurance companies were also allowed to invest in the interbank market. The total number of the participants in the market is 60.
Remark: Giving foreign institutional investors access to the domestic interbank bond market provides a channel for value preservation of yuan funds held by those institutions. It’s a necessary initiative to support the trial of cross-border trade settlement in yuan, which benefits the development of the yuan clearing business. The repatriation of yuan from overseas markets into the domestic bond market strengthened the competitiveness of the bond market as well as heightened the yuan’s position as a reserve currency.
4. Headquarters of financial institutions energize the city
Event: Bank of China’s headquarters for yuan trading was established in Shanghai in March 2012. The Bank of China was of the “Big Four” banks to establish a second headquarters in Shanghai. UnionPay International, a subsidiary of China UnionPay that runs the company’s international operations, also set up a headquarters in Shanghai in November 2012.
Remark: The new headquarters of the Bank of China and UnionPay International have brought new vitality to Shanghai’s transformation into an international financial center.
The headquarters of Bank of China for yuan trading will accelerate Shanghai’s emergence as a yuan asset management center and a cross-border investment and financing center, which has profound meaning for the internationalization of the Shanghai financial market and for Shanghai’s goal to become a global hub for yuan product innovation, trading, pricing and clearing.
The establishment of UnionPay International was an important move in China’s “going out” strategy. To support and drive Shanghai’s construction as an international financial center, UnionPay will leverage its advantage to expand abroad as well as attract domestic and foreign payment companies to invest in Shanghai.
5. Cross-border yuan investment platform
Event: Sailing Capital Management Co Ltd opened for business on February 16, 2012, marking the first round of capital raising by Sailing Capital International Fund, the biggest yuan international investment and lending fund in China.
Remark: Sailing International provides a platform for enterprises to “go abroad.” It strives to provide a commercial, market-oriented operational platform as well as professional and comprehensive investment and lending services for domestic enterprises in overseas investments and in mergers and acquisitions. It also aims to promote yuan cross-border flows through overseas investments.
Sailing has a “parent” fund of 50 billion yuan, which makes it the biggest yuan international investment and lending fund in China. Future investment is expected to exceed 150 billion yuan by leveraging tools that including “child” funds, a combination of investment and lending activities, and bond issuance. Its operational model marks a significant innovation in China financial services, embodying linkages between domestic and overseas markets, linkages between investment and lending, and linkages between fund operations and business overseas expansion.
The establishment of Sailing International meets the strategic needs of Chinese enterprises “going out,” which, in turn, will attract more domestic and foreign capital to participate in the Shanghai financial market. Therefore, it plays important roles in accelerating the construction of the Shanghai RMB Capital Management Center and RMB Cross-border Investment and Lending Center, raising the global profile of the Shanghai International Financial Center.
6. Shanghai equity exchange established to serve the real economy
Event: The Shanghai Equity Exchange was opened on February 15, 2012, with 19 companies initially listed. The number expanded to 29 in the following nine months.
In July, the Shanghai Financial Services Office and the Shanghai Stock Exchange signed the letter of intent for the construction of a regional equity trading market, which upholds the SSE’s participation in the SEE.
Remark: The Shanghai Equity Exchange was a “new recruit” in the creation of a multi-layer capital market, furthering the goal of regulated financial development and addressing the need for real economy development. It provides effective services to the developing medium-size and small enterprises.
SSE’s participation in the construction of the SEE injected strong vitality, momentum and expertise to the sustainable development of the market, which significantly improved the level of supervision, self-discipline and technology. The SEE has effectively promoted the construction of China’s over-the-counter market and the development of the Shanghai International Financial Center.
7. Innovation focused SPD Silicon Valley Bank
Event: The joint venture of Shanghai Pudong Development Bank and Silicon Valley Bank opened for business in August 2012.
Remark: The partnership between Shanghai Pudong Development Bank and Silicon Valley Bank was a milestone in innovation. The joint venture bank represents a combination of the advantageous financial resource in Shanghai and an advanced financial services model. The innovative move underlined the support of the financial industry for the real economy, especially professional services and support for technology innovative companies.
The business model adopted by the Silicon Valley Bank helps it to build core competitiveness, for example, in assessing the future value of companies’ innovative assets and in providing financial support for technological innovation in the start-up phase.
8. Centralized forex transactions at the headquarters of multinationals provides operational convenience
Event: Shanghai-headquartered China Shipping Group Co pooled US$15 million from its overseas units via the global cash management platform of the Bank of China on December 3, 2012. It also extended US$5 million in cross-border loans via the international capital master account at headquarters for overseas units, marking the first successful deal of a foreign exchange capital pooling management trial at a Chinese multinational headquarters.
Remark: The new banking service aims to promote trade and investment facilitation, and to improve enterprises’ comprehensive advantage and overall efficiency.
The transaction indicated that the trial program had entered a substantive operational phase. Simplified foreign-exchange transactions also provide opportunities for domestic financial institutions to provide more convenient cross-border financial services.
9. Protection for financial consumption: safety first
Event: The Consumer Financial Protection Bureau under the People’s Bank of China was established in Shanghai in December 26, 2012.
Remark: Financial regulators formed consumer financial protection departments and carried out effective pilot projects and reforms within their respective jurisdictions.
Financial consumer protection is a brand new field and imposes big challenges. The establishment of the protection bureaus means more security in the process of financial consumption, which is also an important protection for promoting the construction of the Shanghai International Financial Center at a steady pace.
10. The white paper on legal environment development
Event: In August 2012, the Shanghai Financial Services Office and the Legislative Affairs Office of the Shanghai Municipal People’s Government jointly released the White Paper on Constructing a Legal Environment for Shanghai as an International Finance Center.
Remark: After the joint meeting was held, implementing points enumerated in the white paper became an important work process in resource integration and financial center promotion.
In recent years, China continued to improve the financial legal system, providing a sound legal foundation for the construction of the Shanghai International Financial Center. During the process, Shanghai played an active role in the development of financial law at the local level.
Shanghai has made great progress in system innovation, establishment of a sound credit environment, financial law enforcement, judicial development, financial law services and the creation of the proper cultural environment for financial laws to operate and complement the construction of the Shanghai International Financial Center. Shanghai was the first to establish a relatively comprehensive system for a specialized financial judiciary, which provides diverse, fair and efficient channels for dealing with financial disputes and protection for the rights and interests of market participants.
Shanghai’s financial law enforcement and financial judiciary departments have joined forces to combat financial crime and maintain financial stability.