Banking & Finance

Pudong versus Beijing

The battle to be China’s financial centre

Pudong versus Beijing

Shanghai: still in pole position?

You may think Shanghai is China’s financial centre. But Beijing has other ideas.

Competition among the two cities has always been fierce, with Beijing being the political, and cultural capital; and Shanghai laying claim to commercial and financial pre-eminence. Shanghai’s history plays a role too. In the colonial period, it wrested control of finance away from Shanxi’s Pingyao – the Qing dynasty’s financial centre.

But things have become a little less clear-cut lately. “The financial sector accounts for over 14% of Beijing’s GDP,” says Zhao Hong, an official at the Economic Research Institute of the Beijing Academy of Social Sciences. In an interview with the China Times, he adds: “That percentage is increasing annually. Undoubtably, the financial industry is a pillar industry in Beijing.”

Both cities desperately want to be the nation’s financial centre. The China Times reckons the competition between the pair will reach “a white-hot state” in 2009.

Shanghai’s ambitions are focused in Pudong, its skyscraper-laden financial district. Beijing has Financial Street, an area demarcated for financial institutions on the western side of the city. It stretches over 35 blocks and according to already approved plans, will expand further west into six neighbouring areas. Construction is soon to start in the area around Yuetan South Street.

Financial Street – which has been around since 1993 – houses all of China’s key regulators, including the central bank and the securities regulator, as well as the headquarters of the nation’s big banks, such as Bank of China and ICBC. Most of the nation’s biggest companies have their HQ in Beijing, meaning Financial Street has the advantage of being near corporate decisionmakers.

The numbers are impressive too. In October, Beijing reported it held Rmb45.5 trillion ($6.64 trillion) in financial assets – under the custody of 4,649 financial institutions. This was up 30.6% on 2007 and ranked first in China. Premium revenue from insurers hit Rmb53.8 billion in 2008, up 18% from 2007. And between January and November, the financial sector garnered Rmb196 billion of revenues, accounting for 37.4% of the city’s tax take.

“In 2004 the State Council gave its approval for financial services to be the core industry of Beijing,” says Wang Kai, a director of the China Urban Planning Design and Research Institute. “The future development of Beijing will not rely on manufacturing industry but the financial services industry.”

So what are Shanghai’s advantages? It has the stock exchange; plus almost 400 foreign financial institutions have chosen it as their China HQ. Its total banking assets are Rmb5.2 trillion (which was up 11% year-on-year), and its financial services sector last year recorded a profit of Rmb70.8 billion, which was up 28%.

Shanghai tends to have the edge in capital markets activities – such as IPOs – and in foreign exchange. Its people have the reputation for being China’s savviest with money, and that is probably why it is viewed as more financially innovative than Beijing – particularly in areas such as derivatives. It also sits at the centre of the huge industrial area of the Yangtze River Delta.

Professor Qiu Zhaoxiang of the University of International Business and Economics says there is “no well developed capital market in Beijing.” He reckons the absence of a stock market, a futures market and forex market is the “main obstacle in building Beijing into an internationally influential financial centre.”

But unlike other parts of the world, this battle could be decided by policy decisions: in particular the internationalization of the Chinese currency. If it is ordained that one or the other city is to ‘lead’ this process the balance would swing decisively.

And to complicate matters further, no one has even mentioned how Hong Kong fits into the mix. Evidently this is a battle that’s likely to run and run.

Keeping Track: In WiC5 we reported on the battle between the cities of Beijing and Shanghai to become China’s preeminent financial centre. An announcement this week seems to have settled the scrap once and for all – in Shanghai’s favour. The State Council endorsed a blueprint to make Shanghai a global financial hub by 2020. Economists say the announcement also tacitly implies China’s currency will be fully convertible by 2020.(27 March 2009)

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