Thursday, May 12, 2011

Shanghai Strategic Plan in the Next 10 Years

There is a Chinese saying: To know Shanghai today is to know China tomorrow. China continues its ambitious efforts to build Shanghai as a world city and an international financial centre by the year 2020.

Shanghai World Expo 2010 along both sides of Huangpu River

Shanghai World Expo 2010, along both sides of Huangpu River which runs through central Shanghai

Earlier on 13 December 2010, the Shanghai Stock Exchange (SSE) published its strategic plan and implementation measures in the upcoming 10-year (2011-2020) time. Under this strategic plan, SSE will fulfill its ultimate aim of building itself into a world-class stock exchange through totally three stages:

Stage 1:In the first stage until 2013, the Shanghai Stock Exchange (SSE) will
(i.) fuel the construction of international board by accelerating the return of red-chip enterprises to the A-share market in collaboration of regulatory authority and studying the system arrangements for domestic issuing and listing of overseas enterprises.
(ii.) speed up the system building of bond market in line with the requirements of the China's national 12th 5-year Plan to lay a solid foundation for the system construction of a multi-layer capital market.
(iii.) boost the development of index products by improving index series and setting up a blue-chip market index system.
(iv.) enrich single-market Exchange Traded Fund (ETF) varieties by introducing cross-market ETFs based on the Shanghai Stock Exchange (SSE) and the Shenzhen Stock Exchange (SZSE) as well as cross-border ETF products.
(v.) go into agreements with overseas index agencies with a purpose to construct an authorized index pattern with a global coverage.
Stage 2:During the second stage of the SSE strategic plan from 2014 to 2016, the SSE will evolve into a major capital market in Asia region with a more favorable competitive position in the world arena thanks in terms of market deepening, technical service, self-regulation supervision, mechanism construction and also international cooperation.
Stage 3:At the final stage by 2020, according to SSE's long-term strategic development objective, the SSE will grow into one of the most influential stock exchanges in the world, boasting a mature stock market, a highly developed fund market, an improved bond market, a sufficient collection of securities derivatives as well as an increasingly rational investor structure.

(Source: Shanghai Stock Exchange)

In fact, Shanghai is ready to start building necessary infrastructure to implement the stage 1 of its strategic plan. On 21 January 2011, Shanghai's mayor Han Zheng addressed that Shanghai's ambition as a global financial centre depends on controlling distorted property prices. Shanghai has then introduced its first-ever residential property taxes since 28 January 2011 and implemented the "New National Eight Articles" since 1 February 2011. Read more about: Shanghai Property Tax Freezes Purchases and Boosts Rents and How New National Eight can cool China property market.

On 21 February 2011, Shanghai Stock Exchange (SSE) moved even faster and signed a dual listing agreement with BM&F Bovespa in Brazil, the biggest exchange operator in Latin America. Furthermore, on 1 March 2011, Shanghai municipal government also said to plan for re-launching crude oil futures trading on the Shanghai Futures Exchange (SHFE) to offer Chinese firms a tool to better hedge their exposures against swings in global oil prices and to give them a larger say in international oil pricing.

This Shanghai SSE 10-year strategic plan is by no mean an easy task. Though Hong Kong may consider Shanghai as its major competitor, Shanghai sees competitions from Beijing and even Shenzhen instead. As the political capital of China, Beijing never says publicly to give up its chance to be one of the international financial centres. In fact, most state-owned banking giants are now headquartered in Beijing, not Shanghai. Most of the time the top management of Chinese enterprises have to spend days in Beijing seeking bureaucratic approval. It is always easier and more efficient to base themselves in Beijing to meet government officials there and probably travel to Shanghai once per week or so. Fair to say, Shanghai should be able to build, in term of hardware, as an international financial centre by 2020. However, like all other Chinese cities, the major challenge of Shanghai is the software (quality of people), not the hardware (infrastructure). Shanghai is at least lacking of judges and lawyers who have substantial years of experience dealing with complex international finance transactions. Until the RMB becomes freely convertible and also until the Chinese government consistently enforces its laws, Shanghai will get closer to being a Hong Kong in international finance.

Nevertheless, this SSE strategic plan truly dissatisfied all shareholders of the Hong Kong Exchanges and Clearing Ltd (HKEx stock code:, not only because SSE will start to compete directly with HKEx, obviously there is also no plan for SSE to build any specific cooperation with HKEx. In the longer term, we expect both SSE and HKEx will become the top two most influential stock exchanges in the world, going to exceed New York and London in term of size (not necessarily in term of quality) probably within a 20-year time horizon. Well, big in size should be good enough for the financial industries there to build critical mass and continue to soar. That is why we, Mr China, choose to provide independent commentary on China financial markets in both Shanghai and Hong Kong to all of you at our website. Read more about Mr China.

Sometimes we cannot recommend our own website enough, but now you may also imagine these China financial markets are indeed becoming more and more important to you, your friends and even your children. Someone may not like that, as someone may not like New York or London either, but it seems nobody can now stop the global economic power shifting from the West to the East.


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