Shanghai’s Financial Industry
On August 24, 2021, the Shanghai Municipal Government released the 14th Five-Year Plan for Developing an International Financial Center (‘the 14th FYP’). The 14th FYP contains 44 policy measures aimed at turning Shanghai into an international finance center. It outlines the city’s ambitions for leveling up the influence of Shanghai’s capital markets on the global stage, with measures such as the further liberalization of the renminbi (RMB) and the opening up of the industry to outside investors.To get more
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The release of this document came the day after the release of the "Measures to Support the Innovative Development of the Financial Industry in the Lingang New Area of the China (Shanghai) Pilot Free Trade Zone" (the "Lingang measure"). This document outlines specific incentives for foreign and domestic financial institutes to set up in the Lingang New Area, a key development area of the Shanghai Free Trade Zone (FTZ) in the city’s Pudong district.
In this article, we look at the development goals outlined in the 14th FYP that may impact foreign investors and provide an overview of the incentive policies for financial institutions to set up in the Lingang New Area.Shanghai is already home to a highly developed financial sector. In 2020, Shanghai’s financial industry added RMB 716.6 billion ($111.4 billion) in value, accounting for 18.5% of the city’s entire GDP that year (RMB 3.87 trillion ($601.5 billion)). The industry is now seen as a key driver of economic growth in the region, in particular the strategically important Yangtze River Delta (YRD) region.
The goals outlined in the 14th FYP aim to grow the scale of Shanghai’s financial industry, further liberalize the sector, open it up to foreign investment, and better utilize financial tools to fuel high-tech and innovative industries. In addition to the above indicators, the document outlined the city’s aim to drive a higher level of recognition and influence of the “Shanghai price index” for commodities in the international market and to attract or cultivate about 50 leading fintech companies by 2025.
The 14th FYP outlines eight key “tasks” for reaching these goals. The task of highest interest to foreign investors is the measures to further liberalize Shanghai’s financial industry and open the industry up to overseas investors, as well as creating the infrastructure to better facilitate international trade.
One such measure is to further drive the internationalization of the RMB by turning Shanghai into an RMB-denominated asset allocation center. Plans to strengthen have been in the works for some time, with the city announcing goals for developing the asset allocation industry in guidelines for the development of the Pudong New Area released at the beginning of July.
The measures also call for a higher level of participation of foreign investors that meet certain criteria in financial activity. This includes participating in securities, funds, and futures, or establishing financial institutions, such as life insurance companies, wealth management subsidiaries of commercial banks, insurance asset management companies, pension management companies, and credit rating agencies.
The 14th FYP also aims to promote the development of Shanghai’s asset management industry. One proposed method for achieving this is piloting cross-border investment of private equity funds and promoting foreign institutions to manage domestic RMB funds by participating in the Qualified Foreign Limited Partnership (QFLP) program.
