Banks sign up to Shanghai trade zone
Standard Chartered said it was "committed to contributing to the further development" of the zone, and HSBC is also interested in establishing a presence in the zone.
Attracting international lenders will help China achieve its goal of making Shanghai a global financial hub by 2020. The zone, which as well as international trade would feature looser regulations on matters such as interest rates and business licensing, is part of Premier Li Keqiang's drive to sustain growth by shifting the economy toward services and consumption.
"The Shanghai free-trade zone has to be a place that allows banks to operate on an equal footing with banks in Hong Kong, London or New York," said Jim Antos, a Hong Kong-based analyst at Mizuho Securities Asia. "We hope the authorities will stick to less risky types of trading activities, at least at first, in the Shanghai free zone. Risk controls in the mainland banking sector seem flimsy enough at present."
China announced last month its cabinet had approved plans to set up the nation's first free-trade zone on 29 square kilometres in Shanghai, describing it as crucial in adapting to global economic development, while further opening up the world's second-largest economy.
Policy makers may allow free conversion of the yuan and market-oriented interest rates on a trial basis in the zone, a draft plan says. Qualified foreign banks may be allowed to set up branches or joint ventures with local lenders, and some Chinese banks may offer offshore banking services.
Frequently Asked Questions about this Article…
The Shanghai free-trade zone (FTZ) is a 29 square kilometre pilot area approved by China to loosen rules on trade, interest rates and business licensing. For everyday investors, the FTZ matters because it’s designed to open China’s financial sector, encourage foreign banks and trial market-oriented reforms that could affect currency convertibility, credit flows and opportunities in Shanghai’s service and financial industries.
The article says HSBC and Standard Chartered have signalled interest in establishing a presence in the Shanghai FTZ, with Standard Chartered noting it is committed to contributing to the zone’s development. Qualified foreign banks may be allowed to set up branches or joint ventures under the draft plan.
Under the draft plan, the FTZ could allow foreign banks greater access by permitting branches or joint ventures with local lenders, trialling market-oriented interest rates, and enabling freer yuan conversion. These changes aim to let banks operate on a more equal footing with centres like Hong Kong, London and New York.
The draft plan says policymakers may allow free conversion of the yuan on a trial basis within the FTZ. That’s not a guaranteed permanent change, but it signals testing of more flexible currency rules in the zone.
Trialling market-oriented interest rates in the FTZ could influence lending costs, deposit returns and capital flows. For investors, that can mean changing risk/return dynamics for financial stocks, bonds and currency exposure tied to China’s broader rate policy experiments.
Yes. Analysts in the article urge caution—Jim Antos of Mizuho suggested the zone should start with less risky trading activities because mainland banking risk controls currently appear thin. Investors should watch regulatory clarity, the pace of reforms and potential volatility as new rules are trialled.
The FTZ is part of Premier Li Keqiang’s push to sustain growth by shifting China’s economy toward services and consumption and further opening the world’s second-largest economy. Attracting international lenders and loosening some rules are intended to help make Shanghai a more competitive global financial hub.
Yes. The draft plan suggests some Chinese banks may be allowed to offer offshore banking services from the FTZ, which could expand cross-border financial activity and create new service opportunities in the zone.
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