ON ESTABLISHING SHANGHAI AS AN INTERNATIONAL FINANCIAL CENTER

Essential conditions to develop Shanghai as an international financial center

For a region or metropolis to become an international financial center, capital account convertibility and currency internationalization are essential prerequisites. These prerequisites, whose creation depends on a nation’s economic strength and the degree of reform and opening up, are not available in China at present.

System construction to develop Shanghai as an international financial center

Establishment of a credit system

Credibility is the ideological basis of modern finance, and also a necessity in turning Shanghai into an international financial center. The establishment of the credit system in China has focused on the establishment and development of credit rating agencies and the credit assessment of individuals as well as enterprises. In 2002, the pilot of the ZhongGuanCun Credit System was launched in Beijing, which was said to be the first of its kind in China to provide credit products for corporations. However, after a couple of months, the system was left desolate. The poor credit consumption awareness and low demand by corporations for credit products are attributed to the following aspects. Firstly, the credit quality of the corporations and the sense of credit consumption is weak. Secondly, corporations have their own credit systems as well as channels to obtain information, so they have no need for a socialized system. Thirdly, poor transparency and authenticity of information hampers the quality improvement and the demand of credit products. Fourthly, the cost of information collection and organization is relatively high. Therefore, in building a credit system, it is crucial to determine how to unfurl the system and where emphasis should be placed.

Credit systems are rich in content, with the balance between rights and obligations at its core. In a market economy, the rights and obligations focus on property rights, namely the ownership, disposition, allotment and collection of the property. Only when property rights are clearly defined and market participants own independent possessions, can the creditor and debtor come into being, and hence form a credit relationship. Without independent possessions, the participants have no real economic strength to undertake property obligations or fulfill contracts, and are unable to assume trading risks.

Establishment of the financial market system

Firstly, it is necessary to have an open market, which can be measured by the existence of monopoly, limited competition and whether commercial finance is restrained by public finance. Secondly, the transparency of the financial market is needed, which involves information standardization and disclosure. Attention should be paid to whether China's financial accounting standards conform to international ones, whether financial accounting and financial supervision are strict, and whether financial accounting information is released methodically and in detail. Thirdly, it also depends on the abundance of financial intermediaries and the perfection of their operation, which refer to the variety of intermediaries providing services on the basis of authority and impartiality. It goes without saying that authority stems from impartiality, and meanwhile the latter safeguards the former. Fourthly, the role of trade associations, namely trade self-discipline, should take effect.

Establishment of an economic and financial information platform

A network platform for information exchange should be established, and talent cultivation and professional researches should be strengthened. Shanghai should become the training center for financial talents as well as a financial research center. Only in this way, can the supply and exchange of economic and financial information be effective.

Role of foreign-funded financial institutions

The attitude towards foreign-funded financial institutions should be changed. The business of foreign-funded banks is very limited, and most of them are still continuing to watch. Cooperation with foreign-funded financial institutions should be strengthened. Business cooperation covers the utilization of their technological platform and management expertise and the development of financial markets. Contradictions such as the gap in cultural background are unavoidable in cooperation, but mutual trust is more important. Furthermore, the limits on foreign-funded financial institutions should be properly lifted. We can also learn much from their ideas for developing business.

(by Zeng Kanglin, Professor, Advisor to Ph.D.Candidate, Southwest Univ.)