Shanghai's elevation casts shadow over Qianhai

The Qianhai new area's dream of becoming the "Manhattan of the Pearl River Delta" has been plunged into uncertainty since the casting of Shanghai in the leading role in the mainland's long-awaited reform of foreign exchange and interest rates.

Despite Qianhai's rapid progress in lining up Hong Kong banks to set up outlets and in cutting deals for cross-border yuan loans in the past few months, news of Shanghai's leading yuan business development role would inevitably cloud the Shenzhen zone's future, bankers and brokers said.

The central government has given in-principle agreement to Shanghai's new free-trade zone, to be launched this month, becoming the pioneer in the wider convertibility of the yuan and freer, market-oriented interest rates, according to Chinese-language documents obtained by the South China Morning Post last week.

Qianhai was one of the three pilot economic and services zones named by the State Council in December in the 12th five-year plan, with Qianhai to be positioned as a financial services hub and a yuan trade settlement centre.

Three banks from Hong Kong - HSBC, Hang Seng Bank and Bank of East Asia - received approval over the past few months to set up outlets in Shenzhen from which they will be able to serve companies in Qianhai.

This followed the granting of approval by the authorities to 15 banks in Hong Kong to offer a combined 2 billion yuan (HK$2.5 billion) in loans - the first yuan loans across the border - for firms to undertake construction in Qianhai.