International Financial Centre Comparison

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International Financial Centre Comparison
Hong Kong and Shanghai

Both Shanghai and Hong Kong are ranked in the top five global financial centre according to GFCI, 2011[1]. Shanghai keeps up with Hong Kong in finance field in the recent years. We pick up four criteria including diversity of financial products, availability of qualified staff, taxation of capital gains and local currency convertibility to compare Hong Kong and Shanghai.

Diversity of financial products

The diversities of financial products reflect the competitiveness of financial centre. Only with various financial products, investors can make different portfolios to hedge risks or speculate. With more financial derivatives, the financial industry will be boosted as well.

At present, the financial products in Shanghai mainly include stocks, commodity futures, CDs, commercial papers, stock funds, trust funds and some derivatives related to foreign exchange rate or metal prices. In 2009, the Growth Enterprise Market was launched in the stock exchange of Shenzhen. In April, 2010, stock index futures firstly came to the market in Mainland China. I see the two events above as the most innovative things during the past five in the financial markets in Mainland China. Though the volume of financial products sold in the banks was about 8.5T RMB by August, 2011, the sorts of financial products were very limited. And we should keep in mind the background is high inflation continuously. However, these products concentrated more on the profit style of giving loan and earning higher interest than basic bank interest rate.

Some numbers are listed in the following part. Number of securitized derivatives in Hong Kong Exchanges was 6578 by January, 2011[2]. In Shanghai SE, the number of securitized derivatives is quite limited in contrast. The number of ETFs in Hong Kong Exchange, Shanghai SE and Shenzhen SE was 72, 14 and 4 respectively by January, 2011[3]. Hence, a large gap exists between HK and SH in financial derivative markets.

In addition, as we can see from the open market or news, the procedure of launching a new financial product usually will take quite a time in Mainland China. I believe even by 2020, the whole kinds of financial products in Shanghai will still be kind of limited despite that the whole volume will be much greater than today. Furthermore, innovation of financial products needs support of big regulator institutions like CBRC and CIRC. The role of these institutions will affect how fast the growth of financial innovation in Mainland China.

When it comes to the financial products in Hong Kong, financial products almost cover all sorts of products. Corresponding regulation rules are relatively mature. Ordinary investors can easily get access to different derivatives. Though the expand of financial companies in future in Hong Kong may probably not be as fast as that in Shanghai, these financial products will also attract investors to some extent. The quality of such financial products will be the same.

The population of Shanghai is roughly three times as large as that of Hong Kong, thus the numbers of potential customers in Shanghai will be larger in the finance industry. Meanwhile, we should acknowledge that nowadays a large proportion of ordinary investors in Shanghai are short of finance knowledge. With the progress of finance knowledge in the youth people, they will have more complicated financial needs after graduation, which can only be met by means of more advanced financial products. So the future growth in financial products in Shanghai will beyond expectation. But the process may endure a long period. At least by 2020, I do not think the financial products in Shanghai will be as mature as in Hong Kong. In term of a further long period, Shanghai will catch up Hong Kong in financial products.

Availability of qualified staff

Compared with world-class financial center to the size of qualified staff, Shanghai still has...
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