China’s plans to elevate Shanghai’s role through looser controls on capital flows and expanded foreign investment drove share gains in companies tied to the city, Hong Kong’s main rival as the nation’s financial center.
Shanghai International Port Group Co. (600018) rose by the 10 percent daily limit yesterday and has more than doubled over the past two weeks. The gains reflect optimism that a Shanghai free-trade zone will pull in greater investment. A draft plan for the area seen yesterday by Bloomberg News includes expanded opportunities for foreign companies in industries from banking to health insurance.
The initiative is part of China’s goal of making Shanghai a world financial center by 2020. Freeing up foreign-exchange controls in the zone would mark a deepening in policy makers’ efforts to promote international use of the yuan, which a report on Sept. 5 showed became the world’s ninth most-actively traded currency this year.
“Financial sector innovation is expected to accelerate within the Shanghai Free Trade Zone,” HSBC Holdings Plc China economists Qu Hongbin and Ma Xiaoping wrote in a note yesterday. If the yuan is made fully convertible and interest rates are liberalized in Shanghai, “the bold move could push China’s financial reforms forward,” they wrote.
China Shipping Container Lines Co. (601866) and Cosco Shipping Co. (600428) also rose by the daily limit of 10 percent as the benchmark Shanghai Composite Index gained 0.8 percent. China may allow wholly foreign-owned shipping management companies in Shanghai’s trade zone, according to the draft plan. Agence France-Presse reported on the document on Sept. 5.
The plans for Shanghai have raised concerns in Hong Kong that the special administrative region’s status as a hub for Chinese companies to raise capital will be eroded. China’s State Council, or cabinet, headed by Premier Li Keqiang, said July 3 it approved a free-trade zone for Shanghai, and the Ministry of Commerce reiterated the approval in an Aug. 22 statement.
“Competition is not just about how good you are or have been, but more about whether you are better than your competitors,” Norman Chan, chief executive of the Hong Kong Monetary Authority, said yesterday at a forum in Hong Kong. “So it’s no good for Hong Kong to sit on the laurels and just hope or pray that other financial centers do not or cannot catch up.”
Li and his cabinet have been considering the Shanghai policies ahead of a Communist Party meeting in November due to expand on the leadership’s plans for reducing the government’s role in the economy and financial system. Li has called for the state to increase the role of the private sector to sustain growth.
“The Shanghai free-trade zone will be used as a test field for further opening-up of China’s economy and the government will reduce its administrative role in managing the economy during the trial,” said Wang Weijun, a strategist at Zheshang Securities Co. in Shanghai. “Shanghai will definitely be the winner as its proportion of foreign trade in China and even the world will see a significant increase going forward.”
Concerns that the proposed Shanghai free trade zone will have a negative impact on Hong Kong investment and trade are unnecessary, Shen Danyang, a spokesman for the Ministry of Commerce, said last month.
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