Rethinking Sydney’s role as an international financial centre

China's outbound investment is set to sky-rocket, reshaping the world’s financial markets in the process. Sydney is well placed to use this discontinuity to its advantage.

The changing world order is pointing to new directions in regional economic engagement and affording Sydney an opportunity to emerge as a strategic financial centre for the region.

We have just reached agreement on the terms of an FTA with China -- the nation on track to become the world’s biggest ­economy, trading nation and domestic savings pool.

New trading agreements with China, Korea and Japan (and soon with India) put us at the epicentre of the world’s growth.

None of these plans for trade can be sustained, however, without access to finance and the freer movement of capital across borders.

China knows this and some years ago embarked on a massive financial market reform program. It is building a new financial system to support its domestic economy and enable China to play a lead role in the shaping of global financial markets and capital flows.

Australia has been partnering with China for some time in these goals. At a government level the Australian dollar was the third only currency to achieve direct convertibility with the renminbi (RMB) and our central bank has put in place swap facilities to support market liquidity.

Last week important agreements were signed in Canberra cementing our role as a major partner in the internationalisation of the RMB.

The People’s Bank of China anointed Bank of China’s Sydney branch as the official clearing bank for RMB in Australia following the designation of Sydney as an official RMB trading hub. NSW Treasury Corporation became the first Australian government issuer (and one of the world’s first sovereign issuers) of RMB-denominated bonds.

To top it off, Australian financial institutions were granted access to the important R-QFII scheme allowing them unprecedented access to Chinese financial markets, including bonds and equities.

In the global competition for China’s attention, these are big wins for Australia.

Where to from here?

In his address to the Australian Parliament last week President Xi urged Australia to become “more visionary, broad-minded and set more ambitious goals".

With Beijing’s explicit endorsement of Sydney as an offshore RMB hub, the timing could not be better to re-ignite Sydney’s vision to be a leading international financial centre.

We are witnessing a major shift in global production, power and governance.

The shift will not take place overnight, but as China continues to remove barriers to the two-way flow of capital across its border, and as confidence in China’s ability to manage its economy builds, we will undoubtedly move to a multi-polar world order, provoking new alliances, trading networks and investment patterns.

We are rapidly moving away from a small number of dominant global finance centres to a world where there are numerous international financial centres, each closely connected with each other.

Although much of the media’s focus has been on the surge in global trade, underlying the world’s globalisation efforts is the movement of capital -- investments by companies across borders.

China’s role in these capital flows cannot be underestimated.  Outbound investment is tipped to exceed $500 billion in the next five years.

These changing capital flows are reshaping the world’s financial markets. They are a major challenge for incumbent global financial centres but, for Australia, provide space for new thinking and new alliances to be created.

Sydney is well placed to use this discontinuity to its advantage.

Sydney brings to the table a world class financial services sector, access to one of the world’s largest pool of funds under management, a progressive stock exchange and operates in a time zone that straddles that of the US and Europe. 

It has the infrastructure and market depth to organise and deliver international financial services.  

These characteristics are not unique amongst other existing and emerging Asian financial centres, but they are strategically important. They stem from years of sound policy development, robust regulation, strong business engagement and well-developed connections around the region.

They are not easily replicated and are critical pieces in the ongoing reshaping of the world’s financial markets and systems.

The challenge for Sydney and Australia is to leverage these skills and capabilities to integrate and connect the domestic economy with the global economy and to channel capital flows to spur economic growth.

That will require the pooling of expertise, resources, political power and capital with the common goal of being part of the global capital’s infrastructure. That surely is a visionary and ambitious goal worth pursuing.

David is China Practice Consultant at King & Wood Mallesons and Chairs the 'Sydney for Renminbi' initiative set up by NSW Government in August. He is also on the board of the Australia China Council

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