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Title: Why China needs to build shanghai into an international financial centre?
Authors: Yang, M. 
Lim, T.S. 
Keywords: Convertibility
Financial reform
International financial centre
US dollar trap
Issue Date: Jan-2010
Abstract: After China adopted the open-door policy in 1978, Shanghai began to embark on a revival process to become China's economic and financial hub. The directive to turn Shanghai into an international financial centre is timely as it came at a time when China is assuming a leading role in the global economic landscape. China is becoming bolder in the internationalization of its currency and is actively exploring means to reduce its dependency on the US dollar. It is a strategic move by the Chinese Government to identify Shanghai as China's financial centre in order to prepare the country for the post-financial crisis era. However, Shanghai has to overcome a number of challenges. The first, in China today the government still plays important role in the economy. Most of the headquarters of China's national and foreign banks as well as MNCs and local enterprises all prefer to be located in Beijing so that they can be nearer to the policymakers and regulatory commissions. Therefore, further financial reform and reduction of government intervention are the most important conditions for Shanghai's international financial centre status. The second challenge is: Shanghai has to find a way to accommodate the ambition of other Chinese cities in becoming financial centres, such as Tianjin, Shenzhen, Guangzhou, Chongqing, Dalian and others. The third challenge is: Shanghai still has a lot to do in order shore up its current financial infrastructure. The most important step is to allow the convertibility of the yuan and allow the Chinese currency to be traded on the foreign exchange. China can relax the existing regulatory financial mechanisms and allow more foreign companies to be listed in the QFII and local investors and enterprises in the QDII. China should also establish more financial products for investors. Authorities from the central government should also work with Shanghai officials in areas such as improving the efficiency and transparency of the city's legal and accounting system in the financial sector as well as introducing incentives to attract financial talents to Shanghai. Hong Kong is able to provide invaluable lessons for Shanghai to develop its financial sector especially in areas such as liberalizing its capital market and improving its legal system. While these may indicate that Shanghai and Hong Kong could compliment each other, it could change in the coming years especially after China's efforts to liberalize its financial sector and improve its financial governance gather steam.
Source Title: International Journal of China Studies
ISSN: 21803250
Appears in Collections:Staff Publications

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