Presentation Transcript

1. Simon Stokes Financial Services Council Annual Conference Brisbane, August 2013 Imagine setting up your financial services enterprise in a ‘Singapore’ but located in . . . Shanghai!

   All Eyes on ChinaOpportunities for theAustralian Financial Services

2. Introduction Spent 7 years living andworking in Shanghai Original 2006 AustradeChina financial report Lucy Qian and Adam Zhang Identifying and actioning tangible entry points
3. We Got it Wrong in Late 2006!
4. Our 2006 Prediction – What Went Wrong? Hu Jintao turned clock back from 2005 Shift back to State Owned Enterprises (SOEs) Focus on re-regulating the economy i.e. CSRC/CBRC As always the CPC focus on increasing control Winter from 2005-2013 – 8 years . . . but it’s Spring again!
5. Shanghai ‘Unique’ Characteristics 1920s China’s commercial capital.300k foreigners Foreign businesses served by‘comprador’ network Shanghai missed out on developments after 1949 Only early 1990s distrusted Shanghai began take-off Source: https://mail.google.com/mail/u/1/#inbox/14024942c3fbd448
6. Xujiahui: 1980s and Today Source: https://mail.google.com/mail/u/1/#inbox/14024942c3fbd448
7. Shanghai ‘Unique’ Advantages Population 20+ million. Central China location Superb hardwareGlobal DNA ‘software’ World’s best educational system - Bill Gates (TED) Shanghai -the next Shenzhenfor financial services?
8. Breaking News: Shanghai FTA! Li Keqiang approves Shanghai Free Trade Zone 28 km2 in Pudong. Four existing areas. Goods imported, manufactured and re-exported Limited Customs intervention. First in China Testing ground for foreign-related reform Investment, trade, financial services and regulations Pilot capital account liberalisation and RMB convertibility Red tape for foreign companies will be reduced ‘Restricted’ industries to be open to foreigners
9. FTA Some Detail WaiGaoQiao Industrial Yang Xiong -Shanghai Mayor Institutional innovation rather than preferential policies Launch test operationson various policies.Controlling risks CRITICAL: gradually work out complete regulations Your ‘Singapore’ inPudong, Shanghai! ShanghaiCBD PudongAirport YangShanPort
10. FTA More Detail Significantly reduce administrative intervention re cross-border capital flows and movement of goods Widening scope of businesses open to foreign investors Outbound investments to be much easier  Explicit: interest rates within FTZ liberalized Market forces will determine capital costs Trade in commodity futures domestically Bonded warehouses: allowing physical deliveryof commodity futures traded in overseas exchanges Currency? Yuan to flow freely in and out of FTZ?
11. Economic: Critical Role of Shanghai FTA Current China dangers WMPs out of control Property bubble ’Grey’ banking Regulation/corruption Slowing and rebalancing economy Freeing up private enterprise Less role for government corruption Financial repression/interest rates Better allocation of investment flows
12. Political: Critical Role of Shanghai FTA China failure re WTO Wants to engage globally FTZ to enter TPP? Re-engage withforeign businesses Needs 20-30 yearsof reform for success
13. Will it be Derailed? ChinaAcumen Prediction Naturally there issome internal opposition . . . . . . Glaxo under the hammer Vested interests using GSK as problem Hu YaoBang ‘reformist’ family connection CSRC/CBRC opposed but over-ruled Allowing Tianjin and Qianhai to progress Reasons for optimism . . . Chen family Chen Yun (father) one of the ‘Eight Elders’ of CPC Chen Yuan (son) PBOC/CDB – side-lined!
14. Opportunities for Foreign Financial Services? Wish attract foreign/domestic financial firms Foreign banks able to set up subsidiaries in FTZ Less regulatory paperwork. Register not submit contract Aim: become an international financial centre by 2020 Chinese banks can conduct offshore banking in the FTZ Commodities trading in FTZ considered as offshore Foreign commodity exchanges to own warehouses in FTZ Direct competition to Hong Kong asChina’s sole offshore banking centre
15. Opportunities for Australian Financial Services Opportunitiesfor Australianfinancial servicesentities? Pension Underfunding
16. Opportunities: Pensions Superannuation fund technologies Fund managers advising China pension funds 2011 NCSSF announced overseas fund managers (in progress?) with specific expertise in Global real estate property securities Global resources securities Emerging (ex-China) markets local currency bonds Balanced portfolio with multiple asset classes
17. Asset Managers: The Players Brokers – leveraging off their large client bases Insurers – massive assets to put into market Banks – strangleholdon distribution ‘Trusts’ – quasi-legalflexible distributors FMCs – currently adrift waiting for market uptick
18. Asset Management: The Environment Struggle against distribution dominance of 4 major banks Investors trust banks. Soproducts sold without advice Given lack of sophistication.Above will not change soon CSRC aware of need to‘liberalise’ regulatoryframework Will the Shanghai FTZ ‘kick-start’ the process?
19. Distribution Opportunities Stress: little likelihood of new investment channels emerging Investigate:establish WFOE toadvise JV FMC re global allocation Foreigners set up WFOE although unclear re activities permitted Current online offersconfusing, dysfunctional Potential rewards highbut regulatory hurdles Worth monitoringdevelopments
20. Obstacles Foreigners face disadvantagesagainst ‘local’ competition Limited supply of experiencedfinancial services professionals High turnover of staff due to lack of share option availability Most foreign brands cannot competeagainst local banks Little opportunity to market productsdirectly to local population
21. Scramble for China Virtually no Australian financial services exports Australia in relatively excellent financial shape Other nations in unfortunate financial condition So currently exerting huge efforts to enter China
22. Bridge to Shanghai Importance ofShanghai dialect Lucy Qian andAdam Zhang On-the-groundChina experience China: Simon Stokesand Lucy Qian Australianfinancial services Simon Stokes 20+ years Australian expertise
23. Welcome to Shanghai FTZ! All aboard theFast Train! Fastenoughat431kphor7.5% pa?
24. http://www.youtube.com/watch?v=-DOPQrVSHiY