Ticking the boxes of progress on reforms

The recently concluded 11th Lujiazui Forum afforded Shanghai a platform to flaunt the progress it has made in transforming the city into a global financial center.

Last week, the meaning of “global” broke new ground with the start of the new Shanghai-London Stock Connect, a system allowing companies in both countries to raise money and list on one another’s stock exchanges.

On the domestic front, the forum heralded the formal inauguration of the new Star Market on the Shanghai Stock Exchange. The Nasdaq-style market caters to innovative science and technology companies, particularly startups. Trading is expected to begin within two months.

The Shanghai exchange is also trialing a new registration system for initial public offerings, moving them from bureaucratic approvals to marketplace determinations.

These opening measures, along with the central government’s decision to expand the China (Shanghai) Pilot Free Trade Zone Area and to upgrade the regional integration in the Yangtze River Delta to national strategy, are the three new missions outlined by Chinese President Xi Jinping at the 1st China International Import Expo held last November.

All these developments, according to analysts, will give added momentum to the development of Shanghai as a global financial hub.

This January, Shanghai unveiled a set of measures aimed at advancing that goal. The city said it will encourage more direct financing, especially equity financing, and improve cross-border yuan payments and settlements.

As part of its broad financial and market reforms, China launched new crude oil futures in March 2018, allowing Chinese buyers to lock in oil prices and pay in yuan.

The move is expected to challenge the dominance of current global benchmarks like London-listed Brent crude, according to industry watchers. As of March 25 this year, crude oil futures had cumulative trading in the Shanghai contracts hit 17.1 trillion yuan (US$2.46 trillion). The number of accounts opened has exceeded 40,000.

Last May and June, the city unveiled two groups of 23 projects related to financial reform, with 12 of them already implemented.

So far, the city’s efforts seem to be hitting targets. More foreign asset management companies have settled in Shanghai by establishing wholly foreign-owned companies in China. Fourteen international financial institutions have chosen the Shanghai Free Trade Zone for their operations.

Last September, Shanghai overtook Tokyo to move into the fifth place in rankings compiled by the Global Financial Centers, an organization that compares the competitiveness of the world’s leading financial cities.

To create a better business climate, the city opened China's first court specializing in finance-related cases. It will take commercial cases such as disputes involving securities, futures and insurance, and will handle bankruptcy cases where financial institutions are the debtors.

Last year, courts in Shanghai heard more than 179,000 finance-related cases. The number of lawsuits in that category grew by an average 51 percent year from 2013 to 2017.

To better address a new era, Shanghai set up a local financial regulatory bureau last November. The new watchdog will take over the duties and responsibilities of the former Shanghai Financial Services Office.

Shanghai’s financial watchdog also has been given strengthened supervision. Facing increasing defaults on peer-to-peer lending platforms throughout China, the local regulator is exploring effective ways to prevent and resolve financial risks to safeguard social stability.

The city’s banking system seems in good order. Its debt ratio stands lower than the national average, and its non-performing loan ratio is the lowest in the country.

During the past year, Shanghai's financial sector has enhanced support for private firms and smaller companies.

In mid-November, Shanghai Guosheng Haitong Equity Investment Fund, jointly established by Shanghai Guosheng Group, several state-owned enterprises and Haitong Securities, was formally established to ease liquidity difficulties of locally listed companies.

In the same month, Shanghai Pudong Development Bank created the Fosun High-Tech Credit Risk Mitigation Voucher, the city’s first bond-support tool for private enterprises.

In the insurance sector, Shanghai is also taking the lead product and service innovations.

Last June, Shanghai-based China Pacific Insurance (Group) issued the country's first tax-deferred pension insurance policy in the city, marking the beginning of long-awaited tax-deferred pension plans.

Under the program, buyers of commercial pensions can enjoy tax exemptions of up to 1,000 yuan on their monthly income.

The policy is aimed at ushering in a new period of development for personal commercial insurance, sometimes dubbed the “third pillar” of China's pension insurance system. It will help alleviate problems associated with Shanghai’s aging population, industry insiders said.