My name is Jeff Schubert. I authored a “White Paper” for AustCham in Shanghai on the future development of the Chinese financial sector, which was publically launched by the Australian Treasurer, Scott Morrison, in Shanghai on 26 February 2016. See: http://www.austchamshanghai.com/application/files/6414/7097/8626/Australian_Financial_Services_Business_in_China_EN.pdf

Prior to this I was research consultant to the “Shanghai Institute of International Financial Center (SIIFC), Shanghai University of Finance and Economics” — and I gave presentations reporting on the results of my research on behalf of SIIFC at their May 2014 and May 2015 annual Forums. Both Forums were very Chinese affairs (I was the only foreigner at the 2014 Forum and one of only two at the 2015 Forum) which began with set speeches in the morning, followed by afternoon formats which allowed for (more interesting) discussion.

In my presentation for 2015 I particularly pushed the need for the internet to be free (ie less Chinese blocked sites than now) if Shanghai wants to be a top-ranked IFC.

I also suggested that Shanghai needed to market itself better. One very practical way would be to invite groups of “foreign” financial market participants to come to Shanghai (at their own expense) to meet staff at SIIFC, regulatory officials and financial market participants over, say, a 3 day period. This would involve more than a “foreigner” going from the airport to a hotel for a conference, and then leaving again a couple of days later after spending nearly all the time in the hotel. What is needed is visits to offices of regulatory officials, banks etc with the opportunity to sit down for half-an-hour or so and have a two-way discussion and get to know people. This would help reduce some of the barriers caused by differences in language, legal systems, cultures etc.

Some of the more interesting points to emerge from the afternoon discussions were:

Alibaba initially wanted to locate in Shanghai, but failed to get sufficient local support. This issue was raised in the context of Shanghai’s aim to be a place which connects finance with “scientific innovation” and the suggestion that reforms were going “slowly” in the Shanghai FTZ because of concerns about risk. At the 2014 Forum, there were some suggestions that the IFC and FTZ issues were not related, but this time there were suggestions that they are being better coordinated by the Shanghai authorities. It was also suggested that Shanghai’s “slowness” may have been a factor in the Central Government approving other FTZs.

At the present time there are 4 designated Chinese FTZs. At the time of last year’s Forum there was one (ie Shanghai). I asked how many there would be at the time of next year’s forum? I suggested that other cities/regions would be lining-up and that, ultimately, the pressure from the sheer number would force more nation-wide liberalization.

In reply, one senior official said that there are another 23 applications to the Central Government for FTZs. All existing 4 are “tests” but with differences. The most common aspect is in the area of finance. Shanghai is the “general” test zone, particularly for finance and will also have some unique aspects  – such as oil futures trading – which will not be replicated in other FTZs. The other 3 FTZs also have their own unique features, and are special cases designed to help the areas maintain (keep) and take advantage of particular features – eg relations with Hong Kong (in the case of Guangdong), Taiwan (in the case of Fujian), China’s north and northern neighbors (in the case of Tianjin).

I asked about the future performance of Chinese banks as the financial markets open up. I had in mind the relatively poor performance of foreign banks in places like Australia and Russia. I did not really get a good answer to this question, but it was suggested that the overseas expansion of Chinese bank would follow the “Sth. Korean / Japanese model” (ie follow their existing customers, along such places as the “Silk Road” etc) rather than the “European / US model” (ie seeking out new customers in new markets). My own view is that foreign banks will find it very difficult operating in China, and will never be more than very minor niche players.