Guide Development of Chinas Financial Supervision and Regulation

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As the financial policy and supervision centre, Beijing receives information and policy trends of the financial industry almost instantly Deng More importantly, the unique role of Beijing as the policy-maker and the place of financial supervision institutions enhance the importance of private equity in Beijing. The total number of world's top 20 private equity firms in Beijing was the largest in Mainland China but less than that of Hong Kong see Table 6.

Beijing had the largest amount of both the number of PE funds' investments and investment amounts of PE funds in China. The total number of domestic PE funds in Beijing was also the largest Fig. Beijing outperforms in the PE fund industry any other cities in China; it received more than half of all industrial funds licensed by the central government.

In addition, a great majority of large PE investment institutions at home and abroad have headquarters in Beijing. Profit-earning of the PE investment is driven by exploring and acquiring asymmetrical information in the market, those information-sensitive overseas and domestic PE Firms are thus attracted to Beijing to take advantage of the information flow.

The insurance market of Beijing and Shanghai has developed well. For premiums, insurance density and penetration from to , Beijing functioned better than Shanghai. Before , the premium income and insurance penetration of Beijing were larger than those of Shanghai; however, Shanghai's insurance payment and density were larger since In , total premium income and insurance penetration of Beijing were larger than those of Shanghai and Shenzhen see Table 3 , and the total number of branches of insurance companies in Beijing remain the largest in China.

There is more than billion yuan in total assets of the insurance industry in China, with 50 per cent coming from Beijing and around 25 per cent from Shanghai. The headquarters of the China Insurance Regulatory Commission in Beijing provide a unique environment for insurance companies to have rapid access to tactical information for policy making.

In addition, a great many large state-owned enterprises are located in Beijing, which is beneficial for extending insurance businesses and for communication and cooperation among different companies. Beijing's banking industry is the largest in China as Beijing is the centre for domestic banks, and the four major commercial banks, policy banks as well as a lot of regional banks are concentrated in Beijing. With respect to the banking industry, Beijing is rather strong as a domestic banking centre despite its underdevelopment in foreign banking see Table 7.

Domestic and foreign banking sector in Beijing, Shanghai and Shenzhen the end of The predominance of Beijing in the Mainland's domestic banking industry can be reflected from the interbank market, as Beijing's monthly turnover value was about twice as large as the total value of Guangdong and Shanghai. In summary, Beijing's role as a financial centre cannot be underestimated. Beijing is quite strong in the stock market, bond market, PE fund market and insurance market.

Beijing has become a large domestic banking centre and an ideal place for MNC headquarters see Table 4. The functions and roles of Beijing are unique and incomparable in Chinese specific financial framework.

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The tertiary sector has gained the dominant position in Shanghai's economy with the contraction of the secondary sector. Shanghai has its advantages in a higher rate of economic growth with a much larger bond market, a sizeable commodity market and a well-diversified industrial structure. In comparison to Hong Kong, Shanghai does not have a fully convertible currency, transparent and non-political regulatory regime and rule of law, however, its sizeable domestic economy and financial markets prop up Shanghai as a major domestic financial centre in China.

Shanghai is considered as the capital centre in China as its financial markets are well established and diversified under a joint endeavor of central and municipal governments. Therefore, it is important to investigate Shanghai's stock market. Having made a comparison of the stock markets of Beijing, Shanghai and Shenzhen, we can note that Shanghai ranked 1 st with respect to the total number of listed companies, of listed H-shares companies, the total number of fund companies' headquarters and securities companies' headquarters, total stock turnover value and so forth.

Compared to Beijing, Shanghai has more listed companies on Chinese stock market and H-share market; however, the funds raised by newly listed companies were smaller than that of Beijing because the central government proactively encourages state-owned enterprises to list outside China. Shanghai's stock market has its own advantages, therefore it is impossible to define their rankings.

The ostentatious prosperity of Shanghai's stock markets is due to its sizeable domestic economy under the Yangzi River Delta economic zone. Several studies have showed that companies listed in China tend to list on their neighbouring stock exchanges Fig. Shanghai shareholders is the main source of shareholders in SSE's stocks, accounted for about 25 per cent. That is because most mass investment capitals in China usually go to the stock market and real estate industry due to the inconvertibility of the RMB and lack of investment producers provided by the banking sector.

Shanghai's fund market performed better than those in Shenzhen and Beijing. The reason is that the Central Government has been positively pushing the financial development of Shanghai over the past decade in an effort to expand the influence of Shanghai in the world as well as to upgrade its image and status as an international financial centre. Assets under management and total number of fund companies of Shanghai ranked 1 st in China see Table 8.

Shanghai's fund companies occupy half of the market share of assets under management in China. For funds traded on stock exchanges, the SSE was better than the SZSE in terms of turnover value and volume because Shanghai enjoys special policies initiated by the central government to build itself as an international financial centre. In May , the Central People's Government of China published an official document, aiming at promoting the development of financial institutions in Shanghai, including mutual fund management companies.

This policy is greatly beneficial to Shanghai to develop its fund industry. As these supportive policies are put into practice, the financial information platform is well equipped and once the related laws and rules are up to international standards, Shanghai will enjoy a faster growth of its fund market. The development of an insurance industry in Shanghai is the fastest in China. As a matter of fact, the rapid development of the insurance headquarters economy is a part of the strategy of Shanghai's goal to become an international financial centre by the end of This is the first time that China's central government purposefully made policies to build Shanghai as an international financial centre and shipping centre.

By May , the China Pacific Insurance Group was set up in Shanghai, which laid a foundation for the development of insurance industry there. The Shanghai municipal government puts greater efforts in promoting the development of an insurance headquarters economy in order to promote faster development and healthier industrial structure of the insurance sector.

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The favourable policies not only enhance the political environment for the insurance industry, but also help attract more national and international insurance companies to settle down in Shanghai. The efforts are paying off. The Ping An Group, headquartered in Shenzhen, set up a second headquarters in Shanghai, and moved four of its eight subsidiaries' headquarters to Shanghai. Total assets of Shanghai's insurance industry have also increased. By the end of , Shanghai's insurance companies' total assets accounted for about 25 per cent of China's insurance industry's total assets.

The most evident advantage of Shanghai's insurance industry rests on its financial market and trading. As the concentration of these financial markets and exchanges increase, Shanghai has become an important place to insure capital in China. Shanghai has become the foreign banking centre of China. It possesses the largest number of foreign banks' headquarters, deposits and loans of foreign financial institutions in China.

By , foreign firms had established regional headquarters in Shanghai, far exceeding the numbers in Beijing and Shenzhen. Although nation-wide banks locate their headquarters in Beijing for the advantage of access of tacit information from the central government's banking bodies, the majority of China's banks are listed on SSE.

While Beijing is strong in the domestic banking industry, Shanghai has the largest number of foreign banks' corporate bodies in China. As for the number of domestic banking corporate bodies, Shanghai is equivalent to Beijing. In , People's Bank of China set up the Shanghai Head Office to govern the rapidly growing operations and business of domestic and foreign banking bodies in Shanghai. Foreign banks that entered China's market in the early stages preferred to locate their headquarters in Shanghai.

These foreign banks mainly focus on retail business, and most of them are concentrated in the rich YRD region since the Pearl River Delta market was already covered by Hong Kong's banks. In fact, foreign banks that entered the Chinese market in , all set up their headquarters in Shanghai. By the end of , eight out of ten big foreign banks set up their headquarters in Shanghai Zhang and Zhang The concentration of foreign banks in Shanghai can be expressed in the total deposits and loans of foreign institutions, which absorbed over 80 per cent market share of total deposits and loans of all foreign companies in China.

The headquarters of China's foreign exchange trading system is located in Shanghai and preforms differently from that of other financial systems. Its core functions include providing trading, information and services for the operation and transmission of the central bank's monetary policies. China's first foreign exchange futures were issued by the Shanghai Foreign Exchange Transactions Centre in The trading of foreign exchange derivatives in China has increased rather quickly in recent years. The total turnover value of foreign exchange swaps and forward foreign exchange in Shanghai outperformed that of Beijing and Shenzhen.

Shanghai is an attractive place for MNCs to do business in China. Among them, 74 were Fortune companies' regional headquarters. Shanghai has already become a financial centre that possesses the largest number of MNC headquarters in China. However, the number grew to by the end of The growth in the number of MNCs regional headquarters in Shanghai can be partly attributed to Shanghai's preferential policies. As more and more foreign companies enter and set up their regional headquarters in Shanghai, the total number of foreigners has increased to over , by the end of July , accounting for about 30 per cent of total foreigners in China.

This new policy simplifies the exit and entry procedures of MNCs' top foreign managers. In the document, the government clearly states that if MNC's set up their regional headquarters in Shanghai, they will enjoy preferential policies. Apart from the Shanghai Municipal People's government, several districts and counties of Shanghai also issued related preferential policies to attract MNCs' regional headquarters.

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The future development of a headquarters economy in Shanghai is promising. Shanghai's continuous preferential policies enhance its status as an important financial centre for MNCs and their headquarters. Apart from policies, Shanghai has other advantages that outperform other financial centres in China. Shanghai, due to its proximity to the sizable domestic market, was at the top of the list for being one of the most attractive locations in the Asia-Pacific region for multinational companies to establish their regional headquarters.

In line with this trend, more and more companies are establishing their regional headquarters in the Asia-Pacific region. Whereas this step also reflects China's growing importance in the world and the significance of Shanghai as the largest business and financial centre in China. The ChiNext was found in , which was designed for high-growth companies that do not fit for the listing requirements of the SSE.

Shenzhen's ChiNext board has become the world's third largest market for growth enterprises due to its proximity to Hong Kong and the irreplaceable experimental role of financial innovation in China. ChiNext, in terms of market capitalization and trade value, became the largest one among the similar boards in Asia. Although the public and various scholars criticized the fact that the ChiNext still has the old problems of China's capital market, like overvaluation and speculative fever, the establishment of ChiNext has attracted many growing companies to be listed on SZSE.

Shenzhen is considered as the most important fund centre in China due to its proximity to Hong Kong. The future position of Shenzhen is to cooperate with Hong Kong and become the Chinese private wealth management centre. Shenzhen has a lot of investment and management companies, and private equity and venture capital funds are the advantage of its fund industry.

This was the first time the municipal government clearly highlight its support for the private equity fund industry. Venture Capital VC funds in Shenzhen are active and suit the needs of growing companies. Shenzhen has become the biggest venture capital hub in China with the total number of VC fund companies ranking first in VC is financial capital provided to early-stage, high-potential, high risk, and growing start-up companies.

The investment model of VC funds puts money by bartering for an equity proprietorship in the invested companies, which usually have a modern technology or business model in high tech industries, such as biotechnology, information technology and software. In China, venture capital funds are heavily invested in the high-tech industry, whereas private equity funds tend to invest in more diversified industries.

The recent investment models and characteristics of VC funds in China are inclined to invest in the newly listing small, medium and growing companies. VC usually claims back the funds from the investment after earning satisfactory profits; and the primary exit route for VC is IPO. There were IPOs supported by VC companies, accounted for 86 per cent of the total number of withdrawals in The major exit route for VC funds to claim back money from investments in China goes through IPOs, which accounted for a majority proportion of the total number of withdrawals Fig. In , there were companies listed on stock exchanges at home and abroad by IPOs through investments of VC funds.

At the end of , half of the top 20 domestic venture capital firms were situated in Shenzhen, making Shenzhen the biggest venture capital hub in China, surpassing Beijing and Shanghai.

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Shenzhen is an experimental zone for financial innovations in China. Shenzhen has a long history on implementation of reforms and opening up policies ahead of other cities in China since it was designated as a Special Economic Zone in the s. At the early stage of development, Shenzhen provided many preferential policies to attract FDI.

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Processing trade industries processing with materials, assembling supplied components, and then exporting the final products to overseas markets were very popular in Shenzhen in the s due to its proximity to Hong Kong. Many Hong Kong industrialists moved their production processes to Shenzhen seeking lower production costs.

Hong Kong enterprises brought advanced management concepts, new modes of operation and so forth to Shenzhen. These indirect effects were beneficial for Shenzhen's economic growth and attractiveness to other foreign MNCs. Hong Kong's enterprises had become innovators, generated investment and nurtured Shenzhen's business environment, making it easier for foreign enterprises to do business in China regions.

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The prosperity of foreign investment initiated domestic investment and attracted a lot of money from other parts of the Mainland to invest in Shenzhen from spheres such as real estate, logistics, financial industries, etc. Apart from Hong Kong's contribution, Shenzhen municipal government actively conducts a preferential policy to attract foreign companies setting up their headquarters. The function and role of reforms and opening-up frontier moved Shenzhen forward to become an experimental zone for financial innovation in China, especially of the pilot plan approved by the central government for the development of Shenzhen-Hong Kong Modern Service Industry Cooperation Zone in Qianhai.

Internally, the Shenzhen municipal government also provided different kinds of preferential policies to promote financial innovation. This preferential policy is the direct reason for the movement of China Life to Shenzhen Tong As a matter of fact, China Life Insurance Overseas had already moved its headquarters from Beijing to Shenzhen since on the consideration of other favouring aspects of Shenzhen.

Aside from the preferential policy, one of the reasons for insurance companies to move their headquarters to Shenzhen is the good investment environment and unique institutional innovation, which is beneficial for the development of insurance business.

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Shenzhen's government supports the innovation development of its insurance industry and have made Shenzhen into a major experimental place of insurance innovation development in China Xiao Another favourable factor is Shenzhen's close proximity to Hong Kong which enhances the flow of talented people between Hong Kong and Shenzhen and allows Shenzhen's financial industry to learn from Hong Kong's advanced financial practices. Based on the various strengths and competitiveness of Hong Kong, Beijing, Shanghai and Shenzhen in different financial sectors, this part will discuss the direction of development and opportunities for cooperation among the financial centres in the Greater China region.

Hong Kong, Beijing and Shanghai are in a similar position with respect to the stock markets in terms of the regional distribution of listed companies and turnover values in China. The proposed changes were discussed in parliament on Tuesday, and are expected to be formally approved on Saturday. Discover Thomson Reuters. Directory of sites. United States. Business News. Shu Zhang , Se Young Lee. Related Coverage. New regulatory rules in asset management industry "Big asset management" era is coming in Mainland China.

Learn more about the regulatory landscape. Technology Telecommunications. Latest China regulatory updates China further opens up financial sector V. More diversified channels for investment China's capital markets have continuously opened up in recent years, highlighted by the inclusion of China A-shares in the MSCI Emerging Market Index in