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Beijing backs Shanghai goal as finance hub

The central government has endorsed a blueprint to make Shanghai a global financial and shipping centre by 2020. That could help China overcome the financial crisis, Xinhua reported.

Explicit in the State Council's endorsement is that Beijing will make its currency, the yuan, fully convertible by 2020, some economists said. But others saw little new.

The State Council said Shanghai's future lay in modern services, advanced manufacturing and becoming an international hub for finance and shipping. Shanghai must speed up developments in these areas, it said, adding that this could bring benefits to the nation at large and to the Yangtze River Delta in particular.

In his annual work report this month, Premier Wen Jiabao said Hong Kong should focus on 'consolidating its position as a global financial centre'.

In its statement, broadcast on national television, the State Council said: 'Shanghai should strengthen its strategic co-operation with Hong Kong and [the two cities] should complement each other. There should be a sensible division of labour between them so that they can benefit from each other's development.'

This suggests China could have two global financial centres within a little more than a decade.

Raymond So Wai-man, associate professor of finance at Chinese University, said Hong Kong should focus on foreign exchange and derivatives markets and Shanghai on equity and commodities futures markets.

The statement gives the clearest definition yet of the central government's vision for Shanghai. The State Council believes the financial turmoil is an opportunity to forge ahead with the plan, not a hindrance to it.

Shanghai needed to become a global financial centre to match the mainland's economic power and the growing importance of the yuan, some economists said.

'The yuan will become fully convertible by 2020,' said Pan Yingli, a professor of finance at Shanghai Jiao Tong University. 'The blueprint helps Shanghai remove some institutional barriers before the financial markets grow mature.'

But other economists remain sceptical, saying the statement lacks detail or concrete strategy.

'It was just verbal support,' said a professor at the Shanghai Academy of Social Sciences. 'People will get more confused after reading it.'

Shanghai first announced its ambition to become a global trade, finance and shipping hub in the 1990s. Now the city is facing challenges from rival cities, including Beijing and Tianjin, which also aspire to be regional financial centres.

'[The statement] will be of great help to Shanghai,' said Stephen Green, Standard Chartered Bank's chief China economist. 'Beijing does want to encourage companies to use yuan as an invoicing currency in international trade.'

Yuan Gangming, an economist at the Chinese Academy of Social Sciences' Economics Institute, said Shanghai's ambitions posed a threat to Hong Kong but that the city had no cause to worry yet.

'Hong Kong's nature as an offshore and non-sovereign financial market cannot be replaced by Shanghai any time soon,' he said.

Hong Kong academic Li Kui-wai, associate professor in City University's department of finance and economics, believed both cities could benefit from the mainland's enormous potential.

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