Currency reform to boost Shanghai

Shanghai’s mayor, Han Zheng. Beijing seeks to build the city into a major global financial centre, by increasing the use of the yuan in international trade and foreign investment in Shanghai markets

China yesterday pledged to increase the use of the yuan in international trade and encourage foreign investment in Shanghai markets, as it seeks to build the city into a major global financial centre.
The government has previously vowed to make Shanghai, home to China’s major stock and interbank markets, into its vision of an international financial centre by 2020.
But analysts say leaders must permit free capital flows by taking steps to make the yuan fully convertible to achieve the cherished goal.
The country’s powerful state planner, the National Development and Reform Commission, said raising the international status of the yuan was a key goal of a plan on Shanghai’s development unveiled yesterday.
In the blueprint for the 2011 to 2015 period, China will increase the use of the yuan for cross-border transactions and introduce more financial products denominated in the currency, the economic planning agency said.
“Following China’s increasing economic power, the degree of convertibility for the renminbi is continuously increasing,” said the plan, which was posted on the commission’s website and referring to the yuan by its other name.
“The renminbi is gradually moving towards becoming an international currency,” it said.
China tightly controls the yuan to prevent sudden large inflows and outflows of the currency that could potentially destabilise financial markets and the economy.
The United States and other countries have long accused China of keeping its currency artificially low to boost exports. But Beijing defends its exchange rate regime, saying it is moving gradually to make the yuan more flexible.
Under the new plan, Shanghai will also encourage foreign investors to put more funds into the city’s markets, including stocks.
Top government officials, including Premier Wen Jiabao, in early January hinted at measures to boost the country’s stock markets, which neared three-year lows late last year.
The commercial hub would also promote the introduction of an “international board” that would allow foreign companies to list on the Shanghai stock exchange.
Several foreign companies, including British banking giant HSBC and General Electric of the United States, have voiced intentions to list in Shanghai since the idea was floated in 2009.
But Shanghai’s mayor, Han Zheng, said earlier this month that the time was not ripe to launch the international board. “At the moment, this is not a good time,” he told reporters.