Bloomberg News

Citigroup Joins HSBC in Mulling Shanghai Free Trade Zone Plans

September 10, 2013

HSBC in Shanghai

Signage for HSBC Holdings PLC hangs outside a branch in Shanghai. Photographer: Nelson Ching/Bloomberg

Citigroup Inc. (C:US), HSBC Holdings Plc (HSBA) and Standard Chartered Plc (STAN) signaled interest in a proposed free trade zone for Shanghai as China’s leaders seek to revamp the world’s second-largest economy to bolster growth.

Citigroup, the third-biggest U.S. lender, will seek a “leading role” in developing the zone, James Griffiths, a Hong Kong-based spokesman, said by e-mail today. Standard Chartered is “committed to contributing to the further development” of the program, it said in a statement. HSBC is also interested in establishing a presence there, spokesman Gareth Hewett said.

Attracting international lenders will help China achieve its goal of making Shanghai, a port city with more people than Greece and Portugal combined, a global finance hub by 2020. The zone, which in addition to foreign trade will feature looser rules on matters such as interest rates and business licenses, 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,” Jim Antos, a Hong Kong-based analyst at Mizuho Securities Asia Ltd., wrote in an e-mail. “Internationalization of the renminbi and a relaxation of restrictions on foreign banks, brokers, and insurance companies so that these companies have a business reason to want to set up shop in the free trade zone” will be important, he said.

China announced last month its cabinet had approved the plan to set up the nation’s first such zone on 29 square kilometers (11 square miles) in Shanghai, calling it a crucial move in adapting to global economic and trade development, while further opening up the world’s second-largest economy.

Market Rates

Policy makers may allow free conversion of the yuan under the capital account and market-oriented interest rates on a trial basis in the zone, according to a draft plan seen by Bloomberg News. Qualified foreign banks may be allowed to set up branches or joint ventures with local lenders in the area, while some Chinese banks may offer offshore services, according to the draft.

Shanghai Pudong Development Bank Co. (600000), which is controlled by the local government, jumped 8.3 percent today. The stock has surged 35 percent since Aug. 22, when China’s Ministry of Commerce reiterated the approval of the free-trade area. Pudong Bank officials didn’t immediately return calls seeking comment.

HSBC gained 0.3 percent in Hong Kong, while Standard Chartered climbed 1.9 percent. The benchmark Hang Seng Index (HSI) gained 1 percent.

‘New Opportunities’

HSBC has been approached by the China Banking Regulatory Commission about offering banking services in the zone, according to a person with knowledge of the matter. A press official at the Shanghai branch of the CBRC declined to comment.

The regulator solicited foreign banks including London-based HSBC and Standard Chartered for feedback on how they want to open operations in the area, the South China Morning Post reported today.

Bank of East Asia Ltd. (23), based in Hong Kong, also plans to set up an institution in the area, it said today.

“The establishment of the Shanghai free trade zone will bring a range of new opportunities and we have confidence in the mainland China market,” Carmen Lee, a spokeswoman in Hong Kong, said in an e-mailed response to queries. “We will continue to maintain a long-term commitment to local development, which will include a plan to set up an appropriate institution in the free trade zone based on regulatory conditions.”

Faster Growth

The project could have broader implications for the structure of China’s economy, according to Wendy Tang, a Shanghai-based analyst at Northeast Securities Co.

“You can’t separate financial development from the free trade zone,” she said by phone today. “Apart from making it a trial zone for interest rate liberalization and private investment in the financial industry, probably the entire Yangtze Delta region led by Shanghai will see faster growth in sectors such as trade and shipping.”

Shanghai’s economy has expanded by about a third since 2009 to more than 2 trillion yuan last year, larger than any other Chinese city and ranked No. 10 in the world, according to the local government. Still, its GDP growth has lagged behind the national rate since 2009, when the country grew at a rate of 7.7 percent to 10.4 percent.

The project will “upgrade Shanghai’s core competitiveness and boost its status as a global financial, trade, shipping and logistics center,” Barclays Plc’s Hong Kong-based economist Chang Jian wrote in a note on Sept. 6.

The zone will be built on the basis of the city’s four existing bonded trade zones, according to the government.

To contact Bloomberg News staff for this story: Jun Luo in Shanghai at jluo6@bloomberg.net; Stephanie Tong in Hong Kong at stong17@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net


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