Statistics are dizzying, but Shanghai still has a long way to go
While Pudong is burgeoning, lack of access for global players hits growth
Citibank chairman William Rhodes visited Shanghai last month to announce a deal for the worldwide use of mainland credit cards and open the bank's flagship base on two floors of a skyscraper of which it has bought 10 floors.
The skyscraper overlooks the Huangpu River on the east side - Pudong - and Mr Rhodes made the announcement at the Pudong Shangri-La, which last week opened a 36-floor extension, involving an investment of US$138 million.
The two events show the importance of Pudong in Shanghai's quest to become the financial capital of China. But the city still has a long way to go to catch up with international centres such as Hong Kong, Tokyo, London and New York - especially in transparency, regulation, ease of doing business and provision of specialised personnel.
Its Lujiazui district boasts the city's stock market, the larger of the two in China, a gold exchange, an interbank market, a futures exchange and tower blocks that house the offices of the major financial institutions of the mainland and the world.
Japan's Mori is building the 95-storey Shanghai World Financial Centre next to the existing 88-storey Jinmao Tower.
Citibank and HSBC have relocated their China headquarters from Hong Kong to Shanghai.
This rapid growth has given Shanghai the heaviest concentration of banks in the mainland and offered its people access to financial products never available to their parents, such as motor-vehicle financing, mortgages, student loans and a baffling assortment of credit cards.
Shanghai also has the highest mainland penetration of foreign banks. As of the end of June this year, their assets were 357.18 billion yuan, an increase of 13.3 per cent over a year earlier, with a market share of 12.6 per cent, up from 12.1 per cent, according to figures published by the People's Bank of China.
They made a combined profit of 1.16 billion yuan in the first six months, a surge of 68.3 per cent over the corresponding period last year.
Despite these dizzying statistics, the mainland's nerve centre remains in Beijing, where political and regulatory power resides and almost all of the country's banks and other financial institutions have their headquarters. Also, Shanghai's securities market remains trapped in a four-year slump despite the booming economy.
The city's money and capital markets have grown rapidly but remain small and immature compared with their counterparts in the big international centres. For foreign banks, the market remains restrictive and difficult to operate in, despite the mainland's World Trade Organisation membership commitments.
To form a joint venture or subsidiary, a foreign-invested financial institution needs to have between US$10 million and US$20 million in global assets and investments of US$30 million or more. A foreign bank may establish only one branch a year and its yuan lending cannot exceed 50 per cent of its foreign-currency liabilities.
The city also suffers from a shortage of financial professionals such as accountants, auditors, actuaries and those who rate credit. It lacks an independent legal system and a transparent and predictable regulatory environment, with no free movement of capital as the yuan is not convertible and foreign-exchange controls are strict.
These factors mean Shanghai is falling behind the target set by the central government in 1992 that the financial sector should account for 18 per cent of the city's gross domestic profit by this year.
In fact, that figure had slipped to only 10 per cent at the end of last year from 15 per cent at the end of 1999 and compares poorly with the 18 per cent GDP ratio achieved by New York, London and Tokyo.
Shanghai leaders now speak less of 'an international finance centre' and more of 'an international transportation centre', with priority given to a new deep-water port, an expanded international airport and road and rail links.
