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SCMP Reporter

A SHIFT of Chinese banks from the old city to Pudong is slowly but surely taking place in Shanghai but foreign banks are showing little signs of following suit - not just yet, anyway.

  Leading the shift is the People's Bank of China (Shanghai branch) - the city's banking and financial watchdog - this Saturday. China Merchants Bank and many more are expected to follow.

  In typical hyperbolic fashion, Pudong planners say the PBOC (Shanghai) move will herald the dawn of a new era, helping to turn former farmland into a modern metropolis.

  'I see the shift by Shanghai's powerful financial organ as the start of a new era, as more Chinese financial institutions are likely to join it over the next year or two,' says Wan Zhenwei, deputy chief of Shanghai Pudong New Area Comprehensive Planning and Land Bureau.

  The Shanghai branches of the four specialised banks - Bank of China, People's Construction Bank, Industrial and Commercial Bank, and the Agricultural Bank - are putting up their own buildings in Greater Lujiazui in Pudong.

  Greater Lujiazui - a 28-square-kilometre area officially known as Lujiazui Finance and Trade Zone - is one of the four economic zones in Pudong.

   It is touted as the home of the future for foreign banks, insurance companies, and professional services.

  Within it is 'Xiao Lujiazui' - the 1.5 sq kilometre heart of the zone, directly across from Shanghai's famous Bund - which will cater primarily to big names in domestic and foreign banking, finance and insurance.

  Together with the historical Bund, 'Xiao Lujiazui' will form the financial hub of not just Shanghai but the entire country.

  'To achieve that, facilities in the financial hub must be the most modern and efficient in the whole country,' says Mr Wan.

  Great ambition, indeed. But do foreign financial institutions want a home there?   'Not now. I would say foreign banks will probably begin to move to Lujiazui gradually, perhaps in five years' time,' says Fiepko Klug, general manager of Bank Indosuez's Shanghai operations.

  Like Bank Indosuez, all foreign financial institutions now operate out of costly Puxi, west of the Huangpu River, as they did before the Communist Revolution.

  'At the moment, foreign banks do not see sufficient progress in Lujiazui to want to move there,' said Alister Laband, Price Waterhouse's corporate finance manager in Shanghai.

  Despite its progress in the five years since the central government designated Pudong as the 'dragon's head' to spearhead economic growth of the Yangtze River Delta, Lujiazui has yet to build the infrastructure necessary to meet the needs of today's modern electronic banking.

  In its first five years, Pudong absorbed about 35 billion yuan of infrastructural investment. Another 100 billion yuan will be spent on additional road transport, a new airport, port improvement and telecommunications.

  'The kind of infrastructure, especially telecommunications, needed to support foreign banks is highly sophisticated. Frankly, we don't quite have that kind of hardware and software support yet,' Mr Wan says.

  But concrete steps are being taken to address these shortcomings. 'We're now actively seeking foreign help to set up a telecommunications network which can support an efficient and modern banking system,' he says.

  He expects such a system to be ready by the end of the decade, when China is ready to embrace a more open banking system with greater foreign participation.

  By that time, hopefully, Pudong will be linked by more roads, bridges, pedestrian malls and tunnels to Puxi.

  'If you want Shanghai's financial hub to develop like that of London - which, incidentally, is also split by a river - you must enable people to have easy access across the Huangpu River,' Mr Klug said.

  By the end of the decade, what will be significant for foreign banks will be the free convertibility of the yuan, access to local currency business, and the likelihood of being allowed to have more than one branch in Shanghai.

  When these conditions are there, there is no reason why foreign branches will not want to set up a presence in Pudong.

  There is also no reason why Mr Wan cannot achieve his goal: 'I would like to see more than 100 foreign banks and another 100 Chinese banks set up in Pudong well before the year 2010.' 



Foreign banks on slwo road to Pudong