Shanghai Moves to Attract Foreign Investment, Open Up China’s Financial Sector

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  • Shanghai is keen to strengthen its position as a finance and research hub on the mainland – even as COVID-19 has temporarily disrupted development plans.
  • The eastern megapolis is home to over 1,000 multinational headquarters and foreign R&D centers in China.
  • New policies target financial opening-up in the Lingang New Area of Shanghai’s Pilot FTZ.

On March 1, 2020, Shanghai unveiled a number of measures to promote foreign investment as part of its effort to spur the economic growth under the COVID-19 outbreak and facilitate the openness of China’s financial sector. Shanghai will strive to attract another 40 headquarters of multinational corporations (MNC) and 15 foreign-funded research and development (R&D) centers in 2020 and further open up key sectors, including telecommunications, insurance and securities, scientific research, technical services, education, and health services, according to the municipal commission of commerce. So far, the eastern Chinese metropolis is home to 720 regional MNC headquarters and 461 foreign R&D centers. Of these, 50 regional MNC headquarters, including Swire Coca-Cola and Pfizer Upjohn and 20 foreign R&D centers were established in 2019. Shanghai already has the largest number of MNC headquarters and foreign R&D centers in mainland China and in July 2019, it passed the new Proposals on Promoting the Development of Regional Headquarters of Transnational Corporations (Hufugui [2019] No.30), which relaxed assets and organization requirements for parent companies of MNCs, to enhance its appeal to MNCs. Despite the economic impact of COVID-19 since early this year, the city has been reluctant to slow down its efforts to become a leading international financial and trade center for mainland China. In between rolling out policies for the epidemic control, Chinese authorities have not lost sight of Shanghai’s development mission. On February 14, China’s major financial authorities – together with the Shanghai government – unveiled a guideline (Yin Fa [2020] No.46) with 30 measures to speed up establishing Shanghai as an international financial center (the English version of the guideline can be found here). The guideline aims to introduce new financial policies in the Lingang New Area of Shanghai’s Pilot Free Trade Zone (FTZ), accelerate the openness of Shanghai’s financial sector, and boost the integrated development of the Yangtze River Delta. Below are three highlights of the document.

Promoting the pilot scheme on finance in Lingang New Area

Eligible commercial banks will be allowed to set up financial asset investment companies in Shanghai. Such financial asset investment companies will be enabled to established specialized investment subsidiaries in the city to invest in equities of key programs in the Lingang New Area and the Yangtze River Delta. Financial institutions and large technological enterprises will be encouraged to start or invest in fintech companies in the Lingang New Area to explore the application of new technologies, such as artificial intelligence (AI), big data, cloud computing, and blockchain in the financial sector. For qualified enterprises in the Lingang New Areas, banks may directly handle the RMB settlement in cross-border trade. The cross-border RMB income obtained from foreign direct investment (FDI), cross-border financing, and overseas listing may also be directly used for payment within China.

Accelerating the opening-up of Shanghai’s financial sector

Selected foreign institutions can partner with large commercial banks to set up wealth management joint ventures (JV) in Shanghai, according to the guideline. Foreign companies will be supported to set up wholly foreign-owned life insurance firms and establish or control securities brokerages and fund management firms in Shanghai. Mature overseas financial institutions can be approved in investing and holding shares in pension management companies in the city. MNCs are encouraged to set up global or regional fund management centers in Shanghai. The fund management center may, upon approval, trade in the inter-bank foreign exchange market. Moreover, to promote Shanghai as the center for RMB financial assets configuration and risk management, the guideline also calls for further opening-up of the bond market, facilitating the registration process for overseas investors, and developing foreign exchange derivatives, including the RMB interest rate options.

Financial support of the Yangtze River Delta

Last but not the least, the guideline (Yin Fa [2020] No.46)  also encouraged more cooperation among financial institutions across the Yangtze River Delta region, more use of mobile payment services, and building up a unified, market-oriented credit system in the region. China is pledging to open its US$44 trillion financial industry, likely in response to criticism for it having been a one-sided beneficiary of global commerce. Over the last two years, Shanghai has reported 48 opening-up projects to the state financial supervision and regulation departments – covering banking, securities, funds, insurance, and asset management. Among them, a batch of landmark projects have been launched in Shanghai:

  • The first wholly foreign-owned insurance holding company – Allianz (China) Insurance Holding Company Limited;
  • The first foreign-owned securities JVs – Nomura Orient International Securities Company Limited and JP. Morgan Securities (China) Company Limited;
  • The first foreign-owned wealth management JV established by Amundi Asset Management and Bank of China Wealth Management;
  • The first foreign-owned investment management JV – Vanguard Investment Management (Shanghai) Limited; and
  • The first foreign-invested banking agents being granted type-A lead underwriting licenses – Deutsche Bank (China) and BNP Paribas China.

Official statistics show that in 2019, Shanghai added 6,800 new foreign investment projects, up 21.5 percent year-on-year. The contractual foreign capital amounted to US$50.25 billion, up 7.1 percent. Actual realized foreign investment reached US$19.05 billion, an increase of 10.1 percent year-on-year. This year, upon the implementation of the Foreign Investment Law (FIL), to strengthen the long-term confidence of foreign investors, on February 19, Shanghai released 36 measures to optimize the city’s business environment. In spite of the COVID-19, on January 10 – 60 foreign investment projects were signed in Shanghai with a contract value of over US$7.3 billion and on February 25 – 21 such projects were signed at a contract value of US$1.7 billion, according to state media Xinhua agency.