Shanghai to become world's largest financial centre, as China continues to open its capital markets, finds KPMG report

Shanghai to become world's largest financial centre...

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Shanghai is on track to becoming the world's largest financial centre within the next decade, as China continues to open up its capital markets and expand its investor base.  

In absolute size, China's equity markets have now grown to a significant level, from USD 400 billion in 2005 to USD 4 trillion in 2010. This growth has been fuelled by over 500 initial public offerings, including the listings of China's largest banks. Shanghai now has some of the world's largest companies represented on its bourse.  

A joint report by KPMG, FTSE Group and Dagong Global Credit Rating, China's Capital Markets – The changing landscape, highlights the importance of the internationalisation of the RMB and progress towards the launch of the International Board on the Shanghai stock exchange. The new board aims to enable foreign organisations to access the Chinese markets allowing domestic investors direct access to foreign listed companies for investment purposes.  

Simon Gleave, Regional Head, Financial Services, KPMG China, says: "We expect to see the launch of the new International Board occur in the near future, but we note that no timeline has been indicated, although there are clear indications regarding the areas of regulation that need to be resolved as a precursor to any launch.  

These include regulations on financial reporting, accounting and auditing, cross border supervision and stock exchange disclosure requirements. Once appropriate listing rules have been developed and published there will also be a need for clarifications around capital account convertibility, dividend payments and arbitrage."  

Meanwhile, the formal introduction of ChiNext and of Stock Index Futures has significantly helped to broaden the market for domestic investors. And as China's stock market evolves, the investor base continues to expand, with products for Qualified Foreign Institutional Investors (QFIIs) playing a more prominent role. The report notes that as the QFII pool has continued to grow, the total quota is expected to expand to USD 30 billion in the near future.  

Donald Keith, Deputy Chief Executive, FTSE Group, says: "At FTSE, we've seen growing demand for market access products for QFIIs, including those based on the FTSE China Index Series and we anticipate continued interest. It will be paramount for index providers, issuers and exchanges to continue to expand the breadth and depth of products available to meet the needs of investors, as QFII quotas expand.  

With their index trading experience in international capital markets, QFIIs could help to broaden the investor base of China's financial markets through the increasing use of index-linked vehicles, such as Exchange Traded Funds (ETFs), futures and, more recently, stock index futures." 

The focus is on China's capital account liberalisation and the potential implications for the future development of equities, bonds and derivative products. The rapid development of both the stock and bond markets could generate a huge demand for derivative and hedging products.  

Simon Gleave adds: "Although China's corporate sector remains highly dependent on bank financing, there is growing interest in corporate bonds. We will therefore see greater interest in bond and equity financing as the market matures. We expect this growth to continue, particularly if there is further tightening of the bank and regulatory environment.  

Meanwhile, the internationalisation of the RMB will also help to support China's ambitions to transform Shanghai into an international financial centre. In order to achieve these goals, we may need to see full capital account convertibility, and opening of RMB-denominated A-Shares to foreign investors." 

 

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About KPMG  

KPMG is a global network of professional firms providing Audit, Tax and Advisory services. We operate in 150 countries and have 138,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such. 

KPMG China has 13 offices (including KPMG Advisory (China) Limited) in Beijing, Shanghai, Shenyang, Nanjing, Hangzhou, Fuzhou, Xiamen, Qingdao, Guangzhou, Shenzhen, Chengdu, Hong Kong and Macau, with around 9,000 professionals.  

 

About FTSE 

FTSE Group ("FTSE") is a world-leader in the creation and management of indices. With offices in London, Beijing, Dubai, Frankfurt, Milan, Mumbai, Hong Kong, New York, Paris, San Francisco, Sydney, Shanghai and Tokyo, FTSE works with investors in 77 countries globally. It calculates and manages a comprehensive range of equity, fixed income, real estate, currency, commodity and non market-cap indices, on both a standard and custom basis. The company has collaborative arrangements with a number of stock exchanges, trade bodies and asset class specialists around the world.  

FTSE indices are used extensively by investors world-wide for investment analysis, performance measurement, asset allocation, portfolio hedging and for creating a wide range of index tracking funds.  

FTSE is an independent company jointly owned by The Financial Times and London Stock Exchange Group. 

 
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