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The Blueprint for the Construction of Shanghai International Financial Center during the 12th Five-Year Plan Period

During a press conference on January 31, the Shanghai Municipal Government Information Office outlined the blueprint for the construction of the Shanghai International Financial Center during the 12th Five-Year Plan period (2011-2015). The following are the highlights:

Fang Xinghai, director of Shanghai Financial Service Office Zhu Jian, deputy director of Shanghai Securities Regulatory Commission Yu Wenjian, director of Survey and Statistical Research Department of the People’s Bank of China Li Feng, deputy director of Shanghai Insurance Regulatory Bureau Jiang Mingkang, deputy director of Shanghai Banking Regulatory Bureau Wang Jianping, deputy director of Shanghai Municipal Development and Reform Commission

China Reports:This year’s world economy remains in a poor shape and five EU countries had their credit ratings downgraded, and there is also tension over Iran. Under such circumstances, how will the Shanghai International Financial Center project cope with a worsening global financial market as well as fluctuations in oil prices and futures trading?

Fang Xinghai:My overall judgment is that the international situation is in favor of the construction of the Shanghai International Financial Center. People may worry about the risks of a volatile global market, but China has taken the right approach to separate external risks from internal risks as it opens up its financial sector. For example, Chinese branches of foreign banks are required to have their own capital reserves which will not be affected by the crisis of their parent companies. Their operation is independently supervised by the China Banking Regulatory Commission.

On the other hand, if overseas financial markets are in turmoil, China can take the opportunity to develop faster. More and more foreign financial institutions now prefer to expand their business in China.

CCTV:The blueprint mentions that by 2015 Shanghai will have established itself as a global center for yuan trading, pricing and clearing. The move seems to coincide with the plan of the Shanghai Stock Exchange to launch its international board. Will the transactions be conducted in RMB and is it a key step to turn RMB into an international currency?

Fang:The blueprint highly emphasizes the role of RMB simply because an economic power needs to have its own international financial center and make its money an international currency. The Shanghai International Financial Center will have a RMB-oriented trading system.

HKTV:The blueprint also mentions that the financial centers of Shanghai and Hong Kong will be complementary. Could you tell us in what ways they are complimentary? Since Hong Kong is also building an international financial center, will there be an escalation of competition between the two cities?

Zhu Jian:In December the China Securities Regulatory Commission and the State Administration of Foreign Exchanges jointly launched the Renminbi QFII pilot scheme, which is a new example of cooperation between the securities markets in Shanghai and Hong Kong. I think there is a lot of room for cooperation between the two cities. In the Asian Financial Forum held in Hong Kong in January, the vice president of China Securities Regulatory Commission elaborated on this topic and explained relevant policies and measures.

Yu Wenjian:The growth of offshore RMB business has provided Hong Kong an excellent opportunity to develop its RMB business, further consolidating its position as an international financial center. The trend also helps RMB to become international currency. Both Shanghai and Hong Kong will have a win-win situation.

Fang:I agree with Vice Mayor Tu Guangshao. The financial cooperation between Shanghai and Hong Kong has three features: world-oriented, future-oriented and cooperation-oriented. The two markets in Shanghai and Hong Kong should learn from each other and promote each other to jointly enhance China’s position in the global financial system.

Phoenix Satellite TV:The blueprint states clearly the need to create the international board of the Shanghai Stock Exchange and it supports qualified foreign enterprises to issue stocks in RMB. Does it indicate that the international board will be launched before 2015? Can you give us some details? The blueprint also mentioned “eight centers” and five of them are RMB-related. How do you interpret this?

Fang:As I mentioned earlier, the construction of an international financial center is simultaneous with the process to turn RMB into an international currency.

The creation of an international board was first proposed in April 2009 in a State Council document on building Shanghai into an international center of finance and shipping. The blueprint provides details of tasks to be accomplished during the 12th Five-Year Plan period. The international board is definitely something that must be done, but its launch depends on right timing.

HK NOW TV:The blueprint also mentions the trial of letting individuals to make direct overseas investment. Is this something that will soon happen in Shanghai or Hong Kong or somewhere else? If not, is there a schedule?

Yu:The blueprint clearly stresses the task to increase the role and influence of the Shanghai International Financial Center in the next two or three years. We will also concentrate on the development of offshore RMB businesses. The trial project of promoting RMB clearing in foreign trade began in Shanghai as early as July 2009. The city is now a leader in RMB clearing among all the provinces and municipalities.

China’s 12th Five-Year Plan put a focus on establishing a cross-border RMB investment and financing center as a major step to further open up the country’s financial market. Foreign institutions will be allowed to issue RMB debentures in China and more channels will be opened for offshore RMB capital to flow back to China. Efforts will also be made to explore ways for foreign investors to invest in the domestic financial market.

China Business News:I have a question regarding the adjusted construction schedule for the Shanghai International Financial Center. We know that it is quite risky to make a big change in the financial system in a short period of time and we are bound to face challenges in the reform of interest rates and exchange rates. How can we avoid the risk? As Shanghai emerges as the international center for RMB clearing, how do you interpret its significance? Lastly, I’d like to know whether the Shanghai Insurance Exchange will make some new moves as part of the development of the Shanghai International Financial Center?

Li Feng:The China Insurance Regulatory Commission and the Shanghai Municipal Government are now researching on the insurance exchange, which is a novel concept in the world and very complicated as well.

Yu:The Shanghai Clearing House was established in November 2009 and the National Interbank Loan Transferring and Trading System was launched in Shanghai in September 2010. One of the six main tasks in the 12th Five-Year Plan is to promote cross-border RMB clearing. The People’s Bank of China will assist the development of the Shanghai International Financial Center and support commercial banks in Shanghai to set up clearing institutions and expand business overseas.

International Finance News:It is mentioned in the blueprint that the recently-concluded National Economic Work Conference held by the central government called on the financial sector to serve the real economy. What measures have been considered by financial institutions in Shanghai to better serve the real economy?

Yu:The construction of the Shanghai International Financial Center is closely related to development of the real economy. The Shanghai headquarters of the People’s Bank of China has issued guidelines on serving Shanghai’s economic growth, which include 12 aspects and 30 measures. We asked all financial establishments to support the city’s innovation and economic transformation, and let the international financial center and the real economy develop together.

Wang Jianping:The financial sector is vital for the real economy and is the lifeline for development. The State Council has said in a document issued in 2009 that Shanghai is not just going to be a center of finance and shipping, but also a center of economy and trade. The financial sector will benefit from the city’s positioning while the real economy also relies on the financial sector for development. We hope financial institutions will design more products to serve the economic growth.

Jiang Mingkang:Banks now meet up to 90 percent of the social need for financing. A significant part of our 12th Five-Year Plan relates to innovation of financial products. As for import and export financing, the plan asks banks to help small and medium-size enterprises, particularly those in culture, creative industry, new-growth industries and advanced manufacturing, while exploring low-carbon financing and maritime financing. Consumer financing is also emphasized to stimulate economic growth.

Fang:A reporter just asked whether there is any adjustment of the schedule for the construction of the Shanghai International Financial Center. We made no adjustment at all. The completion time is still 2020 as indicated in the State Council’s document. The blueprint just reaffirms the tasks set for the 12th Five-Year Plan period. Compared with other countries, we’ve done a good job in serving the real economy with finance. Otherwise, you can’t explain why China’s economy has enjoyed a fast and sustained growth for more than 30 years. Of course, we can do it better. Thank you!