Chinese monetary authorities will support Shanghai to take the lead in the free use of the renminbi and explore free capital inflow and outflow and free currency exchange in Shanghai’s Lingang Special Area. China will continue to support building Shanghai into an international financial center, with a focus on further improving the financial market, products, and financial infrastructure to boost the allocation of global financial resources, said Wang Xin, Director of Research at the People’s Bank of China (PBOC). Wang said at a news conference in Beijing that the central bank will make a big push to build Shanghai into a key hub connecting the domestic and international markets, including supporting the free use of the renminbi and further facilitating the inflow and outflow of trade and investment in accordance with the principles of anti-money laundering, anti-terrorist financing and anti-tax avoidance. Wang’s remarks came after China released a guideline to develop the Pudong New Area into a pioneer of “socialist modernization”. The Pudong New Area is set to pioneer China’s higher level of reform and opening-up and serve as a strategic link between the domestic and international markets, according to the document released by the Communist Party of China and the State Council, China’s government.
Under the guideline, Pudong will further expand financial opening-up, promote the cross-border, two-way flow of the renminbi, build an offshore financial system that matches Shanghai’s position as a world financial center, and support Pudong in developing offshore renminbi transactions so long as the risks are controllable. At the Lujiazui Forum in mid-June in Shanghai, Huo Yingli, Party Secretary of the China Foreign Exchange Trade System, said that while the currency is now often used in cross-border transactions, most of the transactions have been done in the financial market, with only 15% serving the real economy. In addition, the currency is most frequently used in China-related economic activities. According to the guideline, an international financial asset trading platform should be set up in Pudong. Meanwhile, an infrastructure connection mechanism in Shanghai’s bond market should be built up at a faster pace, which will be conducive to the overall opening-up of China’s bond market. Such measures are of great importance to Shanghai, which aspires to become a yuan-denominated asset allocation center, said Li Feng, Professor at Shanghai Jiao Tong University’s Shanghai Advanced Institute of Finance.
Although China is the world’s second-largest bond market, overseas investors account for only 3% of bond investment in Shanghai, said Li. “By elevating the international influence of various prices determined in Shanghai, yuan-denominated assets will be more widely accepted and influential worldwide. By making more renminbi assets available offshore, individual investors and institutions will be more willing to hold yuan-denominated assets, which in turn will advance the internationalization of the renminbi,” he added. Yang Fan, Chief Strategist of CITIC Securities, said the Lingang Special Area, which was included in the China (Shanghai) Pilot Free Trade Zone in August 2019, will focus on cross-border capital management, the China Daily reports.
The Pudong New Area of Shanghai will rival the City of London and New York's Manhattan in the financial sector, officials said. To reach this goal, Pudong will roll out internationally oriented yuan financial products, expand the scope of overseas yuan-denominated investment products, promote the cross-border, two-way flow of yuan funds, and carry out pilot trading of yuan foreign exchange futures. The construction of a global hub for the yuan's offshore transactions in Pudong will promote the internationalization of the currency, Shi Jianxun, Economics Professor at the School of Economics and Management of Tongji University in Shanghai, told the Global Times. “It means yuan-denominated funds from Pudong can invest in Hong Kong or overseas markets directly, while offshore yuan can flow into Pudong freely in the future,” Shi said. The yuan's offshore market has already reached a certain scale in London and Hong Kong, and construction of the yuan offshore market in the Chinese mainland will further smooth these channels and facilitate offshore yuan to come to China for deposits, loans and investment, Dong Dengxin, Director of the Finance and Securities Institute of Wuhan University, told the Global Times.
In the first half of the year, Pudong's GDP grew by 13.7% year-on-year, and the area attracted more than USD5 billion in foreign investment, with 14 newly added regional headquarters of multinational companies and 15 licensed financial institutions.
