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SHANGHAI - Shanghai, its reputation dented recently by a corruption scandal and facing challenges from other Chinese cities, is fighting back with a five-year plan to become a financial centre with influence around the globe.
The city's plan, published in the official Shanghai Securities News today, envisages that its financial institutions double their combined deposit and loan balances by 2010.
The institutions would have a total deposit balance of 4.5 trillion yuan (US$869 billion) in 2010, versus 2.3 trillion yuan reported by the Shanghai Bureau of Statistics for the end of last year, it says.
Fundraising in Shanghai's financial markets would account for a fourth of mainland China's total by 2010, and the city also plans for its financial institutions to hold a tenth of the country's assets by that time.
The plan does not detail how the goals will be achieved, but authorities have been scrambling to put together a range of financial initiatives such as launching a derivatives exchange in September to give companies tools to hedge financial risks, including the risks from an appreciating yuan.
The plan is partly meant to reassure the city's business community and foreign investors that Shanghai will remain the focus of Chinese finance, despite damage this year to its image and signs that the government also wants to build up other financial centres to balance Shanghai's role.
An investigation into misuse of the nation's financial hub ensnared top officials such as the city's Communist Party boss, Chen Liangyu, and Zhang Rongkun, one of China's richest men, who have been taken into custody since the scandal erupted months ago.
The scandal involved money reportedly drained from the city's 10 billion yuan social security fund for illicit loans and investments.
Meanwhile Tianjin, whose governor Dai Xianglong is a former governor of China's central bank, is gaining focus with a plan to experiment with easing restrictions on the convertibility of the country's currency.
The yuan, which currently may not be exchanged for most purely financial transactions, will become convertible on the capital account within a certain geographical area and up to certain amounts in a trade zone under development in the city.
For Shanghai, however, the city's potential as a financial metropolis is based on expectations that China will become the world's second-largest economy in four years and also depends on factors beyond the local government's new plan, a senior Chinese economist said.
"Financial centres don't just come from planning and are not based on how tall buildings you can build. It takes ... progress in multiple areas to achieve the goal," said Dong Tao, chief economist for non-Japan Asia at Credit Suisse in Hong Kong.
The gap between the equity markets of Hong Kong and Shanghai has increased rather than decreased in the last few years, Tao noted.
The Hong Kong equity market raised US$33.7 ($49.6 billion) in the first 10 months of 2006, while Shanghai attracted US$8.5 billion in the period, he said.
"There are some softer sides from regulation to accounting reliability to corporate governance - a wide range of issues that Shanghai needs to change," Tao said. "I do see the potential, but there's a lot of work to be done ahead."
China recently issued guidelines requiring fund managers to operate within legal boundaries and to protect the rights of investors, its latest step to improve corporate governance standards and internal controls in the financial sector.
- REUTERS
