[Editor's Note]

"In Beijing, Look at Shanghai" and the "Surging Afternoon Tea/Between Beijing and Shanghai" series will be officially launched on May 17, 2024. "Between Beijing and Shanghai" aims to analyze central government policies and explore Shanghai's ideas.

the firstseminarWe invited historian Xiao Donglian, researcher Liu Yunzhong, researcher at the Development Strategy and Regional Economic Research Department of the Development Research Center of the State Council, Fan Shitao, associate professor at the Institute of Economics and Resource Management of Beijing Normal University, and Nan Chuxin, director of the Scientific Research Department of the China Economic System Reform Research Association, to talk about China's Shanghai strategy in its economic transformation.

From macro trends to specific issues. The second seminar focused on the construction of an international financial center and invited Yu Yongding, member of the Chinese Academy of Social Sciences, Pan Yingli, professor of Antai School of Economics and Management, Shanghai Jiao Tong University, Xu Mingqi, vice chairman of the Shanghai Center for International Economic Exchanges, and Director of the Institute of Financial Law of the Central University of Finance and Economics Huang Zhen, Zhang Tao, Financial Markets Department of China Construction Bank, Yang Panpan, Director of the International Finance Research Office of the Institute of World Economics and Politics, Chinese Academy of Social Sciences, Zhang Jianpeng, Deputy Director of the Policy and Regulation Department of the Shanghai City Local Financial Supervision Bureau, Wu Minchao, Director of the Cross-Border Finance Department of the Shanghai Pudong Development Bank Head Office, and Zhang Jun, Deputy General Manager of Lingang Group New Area Economic Company, were nine guests.

The seminar guests reached three consensuses: first, for the construction of an international financial center, Shanghai has the best conditions, but Shanghai alone is not enough and requires the joint efforts of the central and local governments; second, the construction of an international financial center must enhance the level of internationalization and be in line with international standards and rules; third, the pace of building an international financial center can be taken further.

The following are the highlights of Xu Mingqi's speech. Xu Mingqi talked about the gap between China's financial internationalization and the world, the main bottlenecks restricting Shanghai's financial internationalization, and specific suggestions for further opening up Shanghai's finance.

Xu Mingqi, vice chairman of the Shanghai Center for International Economic Exchanges, believes that the core problem facing the Shanghai International Financial Center is the relatively low level of internationalization. The Paper Journalist Zhou Pinglangtu

The issue of international financial centers has been an important area of research for me over the past 30 years. Many years ago, when discussing the financial reform and opening up of the Pilot Free Trade Zone, I suggested that the FT accounts in the Shanghai Pilot Free Trade Zone should be promoted quickly and replicated in more pilot free trade zones.

FT accounts, as an important experiment in China's capital account opening, are actually controllable in risks. It is different from other pipeline-based open paths, including Shenzhen-Hong Kong Stock Connect, Shanghai-Hong Kong Stock Connect, and Bond Stock Connect. I suggested further expanding the scope of the test. Later, Guangdong, Tianjin, and Hainan free trade pilot zones were added to carry out trials, while Shanghai expanded to include high-tech companies that could open FT accounts. However, the scope of the test was not further expanded later. I found that the People's Bank of China is very cautious about further opening up finance. Although Shanghai has worked hard and the State Council has issued many plans and documents, finance has been further opened to regulatory authorities, and it is still very difficult to implement relevant specific measures. I think it will be difficult to achieve major breakthroughs in the construction of Shanghai's international financial center during the "14th Five-Year Plan" period.

This question has been raised again recently. General Secretary Xi Jinping gave important instructions at the Central Economic and Financial Work Conference and at the special seminar on promoting high-quality financial development for provincial and ministerial leading cadres, and proposed six core elements for building a financial power, including a strong international financial center. Today I try to express my thoughts on this.

China's financial internationalization gap

The core problem currently facing Shanghai International Financial Center is the relatively low level of internationalization. The degree of internationalization and openness is specifically reflected in the relatively high participation and penetration rate of foreign capital in the financial system, while domestic financial institutions also have relatively high participation and penetration rate in the international financial market, allowing them to allocate resources globally.The main indicators and criteria for measuring financial internationalization are the comprehensive openness of the economy's financial services industry. External financial institutions enjoy comprehensive national treatment and are able to engage in investment and financing activities relatively freely in the country's stock market and bond market. The government's controls at the access and transaction levels have been basically abolished, and only relevant control measures such as anti-money laundering, anti-terrorist financing, and anti-tax evasion are retained.

We have not yet fully met these standards. When discussing the goal of a financial power, General Secretary Xi Jinping proposed six core elements and six systems construction paths. A strong international financial center is one of the core elements. Since the Shanghai International Financial Center was proposed as a national strategy in the 1990s, it should be said that with the efforts of the central government, various ministries and commissions and the Shanghai City Government, Shanghai has basically achieved its role as an international financial center that is compatible with the international status of the RMB and China's international status. goal. There are many indicators that can illustrate this. The goal of the "14th Five-Year Plan" is to further enhance the level of Shanghai's international financial center, enhance its ability to allocate global financial resources, and lay a solid foundation for building an international financial center with important global influence by 2035. My understanding is mainly that the energy level and level of internationalization must be greatly improved. Nationally, Shanghai's status as the most important financial center in China has been established, and it can be said that it has become an important financial center in Asia.

However, compared with international financial centers with relatively high levels of energy, and compared with international financial centers with a say and influence in global resource allocation, there are still many shortcomings and obstacles in our openness. Compared with the requirements of a strong international financial center and the requirements of a strong international financial center to support financial powers, there is still a certain distance. The scale of China's financial industry is no longer small, with banking assets reaching 4.17 million yuan by the end of 2023, equivalent to US$60 trillion. The total assets of U.S. commercial banks are only US$23.5 trillion, 39% of China's. However, the external liabilities held by the U.S. banking industry reach 66,000, and the banks themselves also reach 4.5 trillion. China does not have similar statistics. According to RMB deposit data at the end of 2021 released by China Hong Kong, Taiwan and Singapore, it is about 1.4 trillion yuan, or about US$200 billion. Compared with the huge assets of commercial banks, the overseas proportion is very low. this showsOur indirect financing system, with commercial banks as the main body, has led to a huge scale of the banking industry, but its degree of internationalization is still relatively low.

According to data released by the Federal Reserve at the end of 2022, the assets of foreign banks in the United States reached US$2.97 trillion, of which the assets of foreign banks in New York were approximately 2.58 trillion, accounting for 13.1% and 11.4% of the assets of the U.S. banking industry respectively. The number of foreign banks that submitted reports was 168, most of which were concentrated in New York, reaching 111. According to data released by the bankbranchlocator.com website in New York, there were 191 banks and 111 foreign banks in New York at the end of 2022, accounting for 63% of the total number of banks. Singapore is also home to a large number of foreign banks. At the end of 2022, there are 127 and there are only 4 local banks. It is a veritable offshore banking center. As an international financial center, Hong Kong has a total of 189 banks, including 31 locally registered licensed banks, 123 licensed foreign bank branches, 15 limited license banks, 12 deposit-taking companies, and 8 online banks. More than 90% of banks have foreign-funded backgrounds.

There are currently 41 foreign banks (legal persons) in China, 21 in Shanghai, 115 foreign bank branches and 139 representative offices. The total assets of foreign banks only account for 1.55% of the total assets of China's banking industry。In terms of the number of financial institutions represented by banks, Shanghai's participation and internationalization are much lower than global financial centers such as New York, Singapore, and Hong Kong.

At the end of January 2024, the market value of the U.S. stock market was US$50.78 trillion, accounting for 186% of GDP; at the end of June 2024, China's Shanghai and Shenzhen stock markets were 73.3 trillion yuan, equivalent to US$18 trillion, accounting for 60% of GDP. Although there is a gap, it also ranks among the top in the world.

There are no overseas listed companies listed for trading in China's stock market, and the size of domestic stocks held by overseas investors is limited. The estimate at the beginning of 2021 is 357 million yuan, accounting for 5.12% of the outstanding market value. At the end of 2023, a total of 563 overseas companies were listed on the US Stock Exchange (Nasdaq has 826 foreign companies). According to data reported by the U.S. Treasury Department in March 2022, as of the end of June 2023, the amount of stocks held by overseas investors was US$13.71 trillion. The amount of stocks bought and sold by foreign investors in the U.S. stock market each month announced by the Federal Reserve is between US$3 and US$3.5 trillion. The high proportion of overseas investor participation and penetration are important features of the U.S. stock market.

The United States also has a huge corporate bond market, with annual issuance exceeding US$2.5 trillion. According to Federal Reserve data, as of the end of January 2024, the bond market balance issued by financial companies in the United States was 19.8 trillion yuan, the bond balance issued by non-financial companies was 13.46 trillion yuan, and the corporate bond market balance reached 33.26 trillion dollars.

According to statistics from the U.S. Treasury Department, U.S. marketable securities (including stocks and bonds) held by overseas investors totaled US$26.9 trillion at the end of June 2023, with medium-and long-term securities of US$25.7 trillion and short-term US$1.2 trillion. If we exclude the 7.6 trillion treasury bonds and 13.7 trillion stocks held overseas, the amount of U.S. corporate bonds held overseas is US$5.6 trillion, accounting for 16.8% of the total corporate bond balance. The holdings of overseas investors in U.S. Treasury bonds have reached US$8 trillion by the end of June 2024, accounting for 23.5% of the total U.S. Treasury bonds of 34 trillion yuan. The participation rate of overseas investors in U.S. Treasury bonds is higher than that of corporate bonds.

This aspect shows that the United States has a huge debt scale, overseas investors own a high proportion of U.S. creditor's rights, and the United States is highly dependent on external funds financially. But it also shows that the U.S. financial market is highly internationalized, and the ratio of foreign capital participating in the U.S. stock market and bond market is also high.This makes New York, the United States, the center of global asset allocation and wealth management. It is not only the wealth management center of the United States, but also the global asset management center.

We often say that Shanghai wants to become an asset management center. Unlike the United States, we cannot reach the level of the offshore market.Make a little comparison. China's government bond market has been increasingly open in recent years, and the number of Chinese government bonds held overseas has continued to increase. At the end of May 2024, it will reach 2.24 trillion yuan, and policy bank bonds will be 0.93 trillion yuan, totaling 3.17 trillion yuan, accounting for 74% of the 4.27 trillion yuan bonds held overseas. However, compared with the balance of China's central government bonds of 28 trillion yuan plus the bond balance of 40 trillion yuan from local governments, the overseas holding ratio is still low. Government and quasi-government bonds held overseas account for 12% of central government bonds. If local government bonds are included, the proportion is only 6.2%. The overseas participation rate of China's corporate bonds and corporate bonds is even lower. According to report data released by the central bank, at the end of April 2024, the balance of China's bond market was 161.4 trillion yuan, and the balance of corporate and corporate bonds should be 93 trillion yuan. The balance of corporate and corporate bonds held by overseas holders is less than 1 trillion yuan, and there is much room for development in the internationalization of the bond market.

The continuous growth of U.S. government and corporate debt shows from another aspect that financial risks in the U.S. economic structure are increasing. However, from the perspective of financial internationalization, the high penetration rate and participation rate from overseas have also helped the United States resolve financial risks to a certain extent., and are related to the international currency status of the U.S. dollar.

The low degree of internationalization of China's financial market is related to the fact that China's financial system has not yet transformed into an open financial system needed by a major financial country, especially international reserve currency issuers.

It is in this sense thatChina's financial institutional opening up is the core link in China's transformation into an open market economy of a modern country, and it is also a strong institutional condition for Shanghai's international financial center.Without this condition, you would just say that Shanghai wants to become an international financial center. If all institutional conditions are not gradually established, it will be difficult to achieve the goal of a strong international financial center, and it will be difficult to become a global asset allocation and management center, with pricing power and influence in global resource allocation.

Personally, I believe that the success of China's financial institutional opening up determines the status of the RMB as an international currency and also determines the realization of China's strategy of strengthening the country. As China's gateway to opening up and an international financial center, Shanghai determines the level of China's financial opening up and its ability to participate in international competition. Therefore, Shanghai's level of financial opening up to the outside world must lead and lead the country. There is also consensus on this, but there is still a lack of consensus on how to promote it.

If Shanghai wants to become a RMB financial asset pricing center and a global wealth management center, although improving the level of internationalization is not a sufficient condition, it is a necessary condition.Only by allowing foreign investment to participate more deeply and extensively in the transaction of RMB financial assets, and by allowing domestic financial institutions and capital to more conveniently participate in the allocation of resources in the international financial market can the internationalization of the RMB and the role of Shanghai International Financial Center in allocating global resources be realized.Now that the goal has been proposed and the path is clear, the conditions are not yet available to advance quickly.

The main bottlenecks restricting Shanghai's financial internationalization

Of course, we cannot risk the systemic risk of a major impact on the entire financial system for the sake of openness and RMB internationalization. This is the bottom line to prevent systemic risks. We must guard against them and no one dares to offend this.

In China, there is a large imbalance between the financial structure and the economic structure, there is a large deviation in the pricing of financial assets, there are obvious maturity mismatches in the assets and liabilities of financial institutions, and the debt ratio of enterprises does not match their expected profitability. These problems exist, local risks are prone to occur and may be transmitted into systemic risks.Against this background, China's financial opening up has adopted a relatively prudent and steadily advanced policy.

ButControlling financial risks and opening up to the outside world should not be opposed. In particular, there is no theoretical contradiction between managing and controlling systemic financial risks and institutional opening up. I am afraid that risk management and control dominate and determine the implementation of opening-up measures are the most important bottleneck in upgrading Shanghai's international financial center.

It is precisely because of the strict management and control attitude of financial risks that the capital account is opened and cross-border capital flows must be absolutely controllable. Therefore, many opening measures are in the form of pipelines and open with limits. Regulators can control flow at any time when needed, or even close the gate. The FT accounts tested in the Pilot Free Trade Zone also basically retain the control characteristics of this thinking.

For example, financial institutions that establish FT account accounting systems must sign an agreement with the People's Bank of China to establish a so-called positive response mechanism. That is, when the People's Bank of China and the external management department discover a risk event, they will make a phone call to the bank, and the bank must immediately implement it. According to the response mechanism. Each bank has designated a deputy president level person. When the regulatory authorities call, they will immediately communicate it to the operator at the counter for implementation. Even if the money has gone out, it may still have to be recovered. Pipeline-based and open-line management and absolute risk control. Although FT accounts are not pipeline-based and line management, they also have a bottom line of risk management and control.

OSA and NRA accounts that promote financial openness are also a product of this control idea. The same is true for Shanghai-Hong Kong Stock Connect, Shenzhen-Hong Kong Stock Connect, Bond Stock Connect, etc. This has made it difficult for foreign capital participation in our financial market to increase rapidly, and foreign financial institutions are unable to carry out various active financial businesses in the Shanghai financial market.

Therefore, the appearance is that the capital account is not fully open and the RMB is not fully convertible. In essence, China's finance has structural problems and risks and cannot take major risks in the short term.

The core of improving financial internationalization is clear goals

To improve the level of China's financial internationalization, the level of Shanghai's international financial center, and allocate global resources, how should we determine our goals? If we want to promote the internationalization of the RMB, as our international strategy researchers have long predicted in advance, if the RMB wants to compete and create pressure on the hegemony of the US dollar, we must allow certain risk tests. If we want to compete with the United States for international currency status and not allow the RMB to be internationalized, where does its status come from? In the general direction of international strategy, scholars of international strategy and international relations dominate. However, people in finance place special emphasis on risks. They believe that at this stage, the internationalization of the RMB is only a result of the trend.

If it is mainly to serve China's economic development at this stage and the internationalization of the RMB is only a result of the trend, then the bottom line of risk control, no systemic risks, and even regional risks must be maintained, and internationalization can only be advanced relatively steadily. At present, this pipeline-based and quota control method still needs to be maintained.

However, under the premise of controllable risks, improving the internationalization level of Shanghai International Financial Center still needs to be accelerated appropriately.

The "Regulations of Shanghai City on Promoting the Construction of an International Financial Center (Revised Draft)" released on July 4, the general direction is in this direction (internationalization), but specific policies and measures can truly promote the internationalization of Shanghai's international financial center. Specific measures seem to be insufficient.

Specific suggestions for Shanghai's financial opening up

It is recommended to first expand the functions of FT accounts in the Waigaoqiao Area and Lingang New Area of the Shanghai Pilot Free Trade Zone, and merge the functions of NRA and OSA accounts into FT accounts to provide offshore + onshore connectivity functions.Provide freer cross-border treatment for the use of funds in FT accounts, and adopt a post-event supervision model for circulation to domestic and foreign areas. Nowadays, many of them are based on pre-supervision models. For example, funds flowing to domestic accounts require various real transaction data and receipts before the money can be in place. Strict cross-border supervision, especially the supervision of cross-border RMB, is obviously incompatible with the RMB's status as an international financial center.

Secondly, it is suggested that we can consider planning to establish the Guangdong-Hong Kong-Macao Greater Bay Area and the Yangtze River Delta Financial Open Special Zone. Through FT accounts, enterprises can widely establish "two-way RMB fund pools" that meet cross-border operations. Foreign exchange controls will no longer be implemented within the quota, and promote "offshore + onshore" cross-border free flow model of RMB.A certain bottom line can still be set at the beginning, but it must be continuously expanded and promoted. There is also a view now that opening measures such as FTA accounts must still be gradually advanced at the pace of onshore financial opening and supervised in accordance with the onshore model. In this way, there is no room for offshore RMB in Shanghai. Since it is the opening up of offshore RMB, we must use the offshore supervision model and cannot be subject to the opening up of onshore finance. To engage in offshore finance in Shanghai, we must have a completely different regulatory model and regulatory ideas from onshore finance. There are still many different opinions on this area. After the regulatory authorities have set the tone, it will be difficult for specific operating departments and enterprises to promote bolder experiments.

To increase the opening up of the bond market, we must first allow enterprises in the Pilot Free Trade Zone to issue local and foreign currency bonds in accordance with international practices, and allow overseas investors to underwrite and invest.

Establish the international version of the Shanghai and Shenzhen stock markets as soon as possible, and the international financial asset trading platform in Lingang New Area should also be launched as soon as possible. We can open a relatively small opening first and continuously carry out risk testing and risk management and control systems during the operation process. Build.Now there are planning opinions and clear goals, but specific implementation details have not been released.

The opening up of the supporting commodity futures and financial futures markets also needs to be steadily improved. On the premise of effectively controlling market manipulation and fraud risks, overseas financial institutions are allowed to participate in trading and risk speculation in the financial derivatives market.

In the plan formulated by the state, the Lingang New Area International Asset Trading Platform needs to be implemented before 2025, and trade and offshore finance must also be carried out in the Lingang New Area. However, it is still in the testing stage and various supporting measures are imperfect. To give full play to the role of big data, as long as there is data that can prove that entrepot trade and offshore trade are real, the corresponding funds should be easily and freely remitted.

It is recommended to actively promote the cooperation mechanism between BRICS countries and the Shanghai Cooperation Organization to a deeper and broader cooperation space, with financial cooperation as an important content.It is recommended to establish a BRICS Trade Clearing Bank to promote the connection between the Belt and Road Initiative and the Eurasian Union, and use various cooperation mechanisms under the United Nations to promote and enhance South-South cooperation. It is recommended to establish a South-South Cooperation Trade Clearing Alliance and a BRICS Trade Clearing Bank to provide new clearing channels for trade among developing countries. Expand the cooperation areas of various FTAs such as RCEP, China-ASEAN, China-South Korea, Australia, and China and new Zealand, create an upgraded version of FTAs, upgrade the content of financial cooperation and financial openness in accordance with relevant provisions of CPTPP, and first achieve high-level financial openness within the scope of RCEP.

Promulgate relevant regulations to attract foreign bank branches, expand the business scope of foreign bank branches, and grant foreign bank branches limited operating licenses in accordance with the guarantee legal documents provided by their head offices. At present, restrictions on foreign bank branches engaging in retail business can be appropriately relaxed in the Shanghai Pilot Free Trade Zone, and corresponding policies can be relaxed for loans provided to domestic small and medium-sized enterprises.

There is another suggestion. We are talking about institutional opening up now. What should we benchmark institutional opening up at the financial level? Benchmarking the high-level opening rules of the CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership), accelerating internal regulatory adjustments and reforms, and expressing to the outside world China's determination to join the CPTPP and improve the level of institutional opening up.In terms of financial opening, we can first implement the provisions on high-standard access and opening of financial markets among members stipulated in the CPTPP terms for CPTPP members, demonstrating China's determination to open up institutional finance and exploring the way for joining CPTPP.Relevant opening-up clauses can be tried out in the Belt and Road countries and relatively friendly countries, whose financial institutions have very little speculation and manipulation capabilities. Try on a small scale and create an upgraded version of the FTA. This way, the impact on us will be relatively small.