Command economies are all about targets. One of China’s most famous plans came about during the Great Leap Forward, in the late fifties, when Mao Zedong set a 15-year goal for the domestic steel industry to reach UK production levels (nowadays that may seem like a rather unchallenging target).
Half a century later and the goals are getting less industrial in their focus. Nowadays they often work towards creating a service economy. And one of the top objectives currently being pursued (first laid down by the State Council in 2009) is to transform Shanghai into an international financial centre by 2020.
More recently some intermediate milestones have been added to the long-term goal. A paper released last week by the NDRC, China’s top planning agency, detailed plans to increase Shanghai’s importance in the global financial arena. The most interesting is for the city to become the world centre for renminbi trading, clearing and pricing by 2015.
“The rise of Shanghai as an international financial hub must go simultaneously with the internationalisation of the renminbi, and the city must also turn itself into a global yuan product trading centre to match the rising impact of the currency,” Fang Xinghai, director of the Shanghai Financial Services Office, told the China Daily.
For this to happen, the NDRC set a number of conditions that must be met.
The planner aims for the Shanghai Interbank Offered Rate (Shibor) to become the benchmark for renminbi borrowing for both onshore and offshore markets. It also wants the daily renminbi mid-point, which is set by the People’s Bank of China, to be used as the global benchmark for renminbi trading.
The NDRC did not explain how these targets would be achieved and the three-year timetable looks ambitious to say the least. With regards to establishing Shibor as an international standard, the government looks as though it faces a particular struggle: “Shibor is not even a very well established benchmark onshore,” a bank strategist told Reuters.
Breakingviews columnist Gu Wei is also sceptical that Shanghai can realise international hub status before completing a series of broader economic reforms – such as dismantling capital controls, allowing for a more freely convertible renminbi, and opening the domestic market to foreign banks. None of these changes are expected soon. Without them Shanghai can become “a giant but not really global,” says Gu.
Whether or not the plans for 2015 are realistic, they will probably spook the aspiring offshore renminbi hubs. Banks doing business in Hong Kong are already benefitting from the city’s status as the international centre for offshore renminbi trading. And London is vying to become Europe’s centre for renminbi trade (see WiC136). Neither will be thrilled to hear talk of bringing the renminbi internationalisation plan back towards China.
Others say there is less need to be concerned, and that Shanghai’s renminbi role will be different to more established hubs like London and Hong Kong. HSBC economist Donna Kwok told Reuters: “Promoting Shanghai as an onshore yuan centre complements Hong Kong’s growing role as an offshore centre, and should help to strengthen the circle of onshore-offshore yuan flows underpinning the yuan trade settlement process.”
In addition to transforming into a renminbi hub for the wider world, the NDRC also expects Shanghai’s financial market trading volume (excluding foreign exchange) to double to Rmb1,000 trillion ($160 billion) by 2015. Further, the planner wants the city’s interbank bond market to be in the world’s top three by volume by the same date (it is currently number five), while the relatively small derivatives market is expected to enter the global top five too.
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