China Law Blog

My view? Well, I have to say that although Shanghai has a way to go before it can pass Singapore, it is certainly the financial heart of Mainland China. Here's my reasoning:

1) Shanghai is undeniably way ahead of Beijing in terms of GDP (Shanghai: 56,733 RMB per capita per year, Beijing: 49,505). Although Shenzhen is ahead of Shanghai in strict GDP at 169,450 RMB, unlike Shanghai, Shenzhen's population figures do not include its substantial migrant population - so this statistic is probably a bit dodgy.

2) Shanghai has more growth potential than Shenzhen and Beijing, both of which are straining against the disadvatages of their location - Beijing is poor in resources like water, and Shenzhen is geographically cramped between hilly terrain and the border with HK. Shenzhen does have the Pearl River area behind it, but this is less of an advantage than the substantial hinterland that Shanghai enjoys in the Yangtse delta with cities like Nanjing, Hangzhou, Yangzhou, Suzhou, Hefei and Huangshan within easy reach.

3) Just walking around on the streets - and here's where my bias starts to show - Shanghai has much more of a buzz to it than Beijing or Shenzhen. The night clubs are better, the restaurants are more varied and of higher quality, the people are more open minded.

4) Whilst Shenzhen suffers from having practically nothing in the way of history and local culture, and Beijing has rather too much (and of the wrong kind), Shanghai's history marks it out as a centre of modern culture, fashion, and Chinese engagement with the outside world.

Dan.

totally agree with you on this one.

Wall Street is getting its teeth kicked in (with good reason), our administrative response has been much like that during Katrina, and people are scared/ pissed.

but the market did not lose 60% this year like Shanghai's, and when it comes down to it, even in the worst of times the fact is that NY/ London/ Hong Kong all have strong structures to stand on that cannot be put into place in the matter of a couple of years.

Shanghai has had a good run, and it has 1.3 billion people behind it, but it needs to mature over time to reach the status of world's financial center

I would say HK/ Tokyo will remain the tops in Asia for a while. Singapore will hang in there, and Shanghai will just keep growing as it has. At some point, Shanghai will represent a mature market, but 80% of the country still needs to develop before it gets there.

R

LoL, I agree. Honestly, trying to write a post explaining why Shanghai is not going to replace New York anytime soon is probably giving the very notion more credit than it deserves. Now, no one is saying it is impossible, but just improbable and there are few signs to any reasonable person to think otherwise. As much as I love Shanghai, it has a long way to go before it can catch Hong Kong, much less New York in terms of being a financial hub.

I don't get it- why Shanghai and not Hong Kong? Hong Kong is an extremely convenient city, perfect as a transit hub and with a history of being a financial center. It can take advantage of China's growth and a history of connections to the West. If they mentioned HK as a possibility I would believe them, but they spend a lot of time talking about Shanghai, whose only advantage seems to be that it's in China. Why?

"Will Shanghai be a top one, two or three financial center within the next ten years?"

I thought after Great Depression in 2009, we all go back to barter economy, no "financial center" needed :)

Just kidding. All depends on the actions taken by government in the coming months. We just don't know. Seriously, who would thought Lehman, Merrill and Bear all gone within six months? There are still plenty of shoes to drop, and I seriously doubt the viability of some venerable European institutions. How much unknown unknowns still out there? Well, we just don't know.

Also, two financial centers in Asia are Hong Kong and Tokyo. Singapore as a regional center and an asset management industry hub, yes; one of the "big two" in Asia, no.

FOARP,

I agree with you on all points, and raise you one. Shanghai has a history and a present of being one of China's most accepting cities for foreigners. This will aid it in developing as a financial center.

Allroads,

Thanks for pointing out Tokyo without mentioning that I completely and inexplicably failed to mention it. Of course Tokyo is in the top three in Asia as well. Damn, I was stupid on that one.

Kai,

Thanks for your understanding. My fear was someone was actually going to make me spell out all my reasons, beyond it being "a BMW thing."

JB,

Becauase everyone already thinks of HK as a financial center and writing about it won't pay the rent.

k,

You are right. I still cannot believe I left Tokyo out.

Utter nonsense. The RMB is not convertable, foreign investors do not have access to Chinas stock markets and the banking regulatory system needs reform to let international players in. Heres a clue: Where are all the foreign currency change shops in Shanghai? What is this, six form class?

I don't think any single one city is going to take all. But I think it is a matter of time before Asians collectively stop sending their cash to Wall Street and decide to play the game themselves, in Tokyo, Shanghai, Hong Kong, Singapore, etc. No reason why Wall Street is the only place capable of blowing bubbles.

Shanghai is not in competition with New York because of time zones.

To do finance, you want 24 hour trading and global coverage. This means three offices, one in Europe, one in the Americas, and one in East Asia. Wall Street is not in competition with any East Asian center, because people don't want to call their broker at 2 a.m.

The big competition is between Hong Kong and Tokyo, and the Chinese government is putting a lot of effort into having Hong Kong displace Tokyo as the East Asian financial center.

Shanghai can and will be a major financial center (sort of like Chicago) but it can't be a global center because you have capital controls. People can't move their money freely in and out of Shanghai.

Also curiously, there isn't much competition between Shanghai and Hong Kong. Shanghai is inside the currency firewall which means it can't fully do global business. Hong Kong is outside the currency firewall which means that it can't do Mainland Chinese business.

To follow-up on what Twofish and others have said, many financial sponsors are setting up offices in Shanghai/Beijing in order to raise RMB denominated funds.

We will always overestimate the situation 2 or 3 years later.
But about ten years laters, we will almost underestimate that.
So does this issue about Shanghai.

Actually，there is not only one center in the world. London, New York, Singapore, Dubai, Hong Kong, and also Shanghai are the World's Financial Centers at the same time.

But with the increasing of the Chinese Economy, the position of HongKong and Shanghai in the world, especially in Asia, will be more and more important. At the same, the position of London and New York will be less and less important. But anyway, they will still be one of the World's Financial Center.

I'm surprised that Chicago gets such little attention. With CME Group, Chicago is becoming a major player in its own right

Oh plz... The only thing Shanghai will beat NY, HK, and London in is the KTV clubs...

Seriously, the global language of finance is English, whether you are in Dubai or HK. When was the last time anyone trying to staff up more than 10 people in Shanghai with good English speakers and got nothing but bunk? Argh.

I hope to be long dead when the global language of finance switches to Chinese. Ha ha ha!

I think that Shanghai needs to have more listed companies to compete with Wall Street. And also wealth investors must enter the financial markets there. Well how does one attract them?

Originally a fishing and textiles town, Shanghai grew to importance in the 19th century due to its favourable port location and as one of the cities opened to foreign trade by the 1842 Treaty of Nanking.[8] The city flourished as a center of commerce between east and west, and became a multinational hub of finance and business by the 1930s.
Shanghai's prosperity was interrupted after the 1949 Communist takeover and the subsequent cessation of foreign investment. Economic reforms in 1990 have resulted in intense development and financing, and in 2005 Shanghai became the world's busiest cargo port.
Shanghai's prosperity was interrupted after the 1949 Communist takeover and the subsequent cessation of foreign investment. Economic reforms in 1990 have resulted in intense development and financing, and in 2005 Shanghai became the world's busiest cargo port.

Shanghai has one of the world's busiest ports. Since 2005, Shanghai has ranked first of the world's busiest cargo ports throughout, handling a total of 560 million tons of cargo in 2007. Shanghai container traffic has surpassed Hong Kong to become the second busiest port in the world, behind Singapore.[30]

From all the aspect, we can conclude that it is just matter of time and inevitable for shanghai to becomes a significant asian financial centre, however, to overtake new york as world largest financial centre mainly depend on the future political and development of china government policies...

We cannot used BMW or Mercedes to compare as they are current largest in their sector but we cannot deny that Citigroup and HSBC as prior world largest banking by market capitalisation has been overtake by China Construction & Industrial Bank Corporation last year....

The potential of Shanghai is limited by policy decisions of Beijing. Shanghai clique no longer exists so "go-for-broke" mentality for developing Shanghai has been limited by President Hu Jintao which argues for a more balanced, stable, national growth agenda to other YRD cities, inner China, rural areas.
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Ultimately, China will be more like HK and HK will be more like the mainland.

In the middle of it all, HK has tremendous advantages when it integrates with Shenzhen/Mainland China which Shanghai arguablly will not have.

First mover advantage of international expertise and experience will certainly prevail for HK. Just because Shanghai was a financial center 60 years ago doesn't mean squat if all the Shanghaiese $ left and pick up their bags to go to HK. Both are Chinese territories in the end and HK will benefit from closer economic integration with CHina.