It'll take time for Shanghai to become financial hub

Beijing

SHANGHAI is primed to become a financial hub given the scale of China's economy and capital-raising needs of domestic companies but this will take some time, says Singapore Prime Minister Lee Hsien Loong.

Its legal system remains the key bugbear, given that the rule of law is one important ingredient for a thriving international financial centre.

"There is a difference between Hong Kong and Shanghai still and this is not just where the financial institutions happen to be. It's also the whole ecology," Mr Lee told reporters at the close of the Apec Summit in Beijing.

He noted that Hong Kong has the advantage of having the rule of law in place and "the precedence of how things are done" that has drawn several financial institutions to set up shop there.

The Chinese is already campaigning for the rule of law, which is necessary for business confidence and trust. Only when that happens can the financial industry grow, Mr Lee said.

One interesting development in China's push in capital market reforms has taken place in Qianhai, Mr Lee pointed out. This boom town in the outskirts of Shenzhen has been designated an economic development zone to further promote modern services and is used as a testing ground to open up the financial services market.

Rules in Qianhai are similar to those in Shenzhen. Its anti-corruption agency is meant to be independent and the courts are meant to be autonomous. "In other words, the Chinese understand that these are prerequisites which have to be put in place in order to gradually grow a robust, cosmopolitan international financial system," Mr Lee said. "But it takes time" even as the banks are streaming into Qianhai, he added.

Mr Lee noted that Shanghai is of a much bigger scale, with its experiment with the free trade zone (FTZ) currently underway. "I think they will make further changes along the way but I think it will be some time before Shanghai is treated the same as Hong Kong is today."

China has been speeding up reforms to develop a multi-tiered capital market, with the regulators giving the go-ahead this week for the Shanghai-Hong Kong Stock Connect scheme that allows mutual stock market access for investors. The highly anticipated cross-border trading link connecting Shanghai and Hong Kong is now set to launch on Nov 17.