Shanghai shuffles to lure bankers

SHANGHAI is trying to entice foreign workers east in a bid to become a financial centre to rival London and New York.

Shanghai's World Expo is expected to be a tourist bonanza, drawing 70 million people between May and October. It will also be used to start recruiting bankers and barristers to settle on the banks of the Huangpu River.

When RBS chief executive Stephen Hester said he had to pay big bonuses or lose more top-earning staff than the 1,500 lured away last year, this was exactly what he feared.

Considering Shanghai had no stock exchange 20 years ago, the city has come a long way. Measured by market capitalisation, its stock exchange is already bigger than Hong Kong's.

Shanghai needs to attract an army of money managers, lawyers, accountants, actuaries, brokers and other professionals, Chinese and foreign, if it wants to achieve its stated aim of rivalling New York and London in the next decade.

"Shanghai is benchmarking itself aggressively toward New York in terms of being a financial capital," said Professor Buck KW Pei, associate dean of Asia programmes at Arizona State University's WP Carey School of Business.

Pei said: "New York has 10 per cent of its workers in financial service. Shanghai has 2 per cent in financial services. They know they need to attract and educate more — and not just in banking, but to diversify into investment banking, hedge funds, commodities, bonds, private equity, venture capital, insurance products."

Many of the largest Chinese banks have headquarters in Beijing, not Shanghai. Pei said: "If you think of investment banking, there are only a handful of companies in Shanghai. They are very small compared to say, Goldman Sachs or Morgan Stanley. The largest investment company headquartered in Shanghai has only 2,000 to 3,000 people."

Over the past decade, the city has worked feverishly and spent lavishly, adding high-technology parks, bridges, roads, miles of subway and other facilities to prepare for a shift away from manufacturing and industry toward higher-value, service-sector employment.

David Patrick Eich, a partner at the law firm Kirkland & Ellis, said: "All of that hard infrastructure you need to attract foreign professionals — good schools, green parks, transportation — Shanghai has recognised that and even used the Expo to create some of it."

China's accession to the World Trade Organisation in 2001 brought a series of changes that made the country more hospitable to overseas investors, Eich said. The task now is to "create certainty, consistency," he said, adding: "Local municipalities like Shanghai have begun to experiment to push this certainty forward."

With the China State Council, or cabinet, having formally tapped Shanghai last March to become the mainland's international financial capital by 2020, experts believe officials are ready to start at least local easing of currency restrictions, taxation and investment rules.

Pei said: "One of the things Beijing has in mind is to let Shanghai have special privileges in terms of offering new financial services products and regulations and eliminating red tape. In terms of real estate investment trusts, China is allowing only a few cities to experiment with these. Shanghai is one. Or granting 'green cards' or local visas — Shanghai has far more flexibility."

One step in that direction came last summer when Shanghai said it would let foreign private equity firms raise money from domestic Chinese investors for the first time.

Perhaps the biggest question, according to many in business, is whether China will allow the renminbi to become a convertible international currency.

Usha CV Haley, author of The Chinese Tao Of Business and a research associate at the Economic Policy Institute in Washington, said: "Becoming a domestic financial centre is one thing. A global financial centre is another. There's never been a world financial centre without a freely flowing currency. That's a huge obstacle."

Michael Klein, professor of international economics at Tufts University and author of a book on exchange rates, noted that allowing full currency convertibility would mean giving up a powerful macroeconomic lever that is critically important to China's export sector — a major jobs engine.

Piecemeal efforts, like a pilot programme allowing companies in Shanghai to use renminbi as a trade settlement currency rather than dollars or euros, are a way to test the waters.

Klein said: "My sense is that the government is trying to be pragmatic and also experimental but not to move strongly one way or another. It's a smart way to go."