China has big dreams for Shanghai’s financial sector. Last autumn’s Communist party Congress set the theme of “reform and opening-up” as a key strategic target over the coming decade. Chinese president Xi Jinping recently confirmed the government’s plans to pursue gradual liberalisation, starting with financial services.
The first step will be to ease ownership limits on foreign joint ventures in the financial sector. This reform will be applied first in Shanghai — which China hopes to make the next global financial centre. Not only does it have a century long history as China’s financial and commercial hub, it also has several advantages over other Chinese cities.
Shanghai has the greatest number of security firms, mutual funds, and futures companies, and the highest value-added in financial industries. The city has also enjoyed the swiftest pace of financial and economic reform. In August 2013, it became China’s first free-trade zone, eliminating financial requirements for setting up firms and permitting renminbi convertibility and unrestricted foreign currency exchange. The city’s long history of financial development and overseas commercial exchanges pre-dates the Communist regime. Nearly half of foreign banks’ total assets in China are currently held in Shanghai accounts; its stock market already facilitates trading in Hong Kong shares and is set to build a similar link with London.