Shanghai was once a well-known financial center. In 1847, the Great Britain Oriental Banking Corp. entered Shanghai, and became the first foreign bank operating in China. The Shanghai Sharebroker Association, established in May1891, was the first stock exchange in China. In May 1897, the first bank established by Chinese was set up in Shanghai. In the 1930s, Shanghai became the business and financial hub of China, as well as the most important financial center in Asia, especially in East Asia. At that time, Shanghai boasted developed financial markets, including domestic and foreign currency exchange, as well as gold and silver markets. Meanwhile, the futures market was also prosperous. In terms of the capital market, Shanghai was the third largest stock and bond market following New York and London. Company stocks from all countries could be traded in Shanghai. It is without doubt that Shanghai is the cradle of China's financial development.

However, due to World War Ⅱ, nearly all foreign banks terminated their business in China, leading to the financial slump of Shanghai.

Entering the 21st century, Shanghai is taking shape again. Many people like to visit the Bund to look at the European architectures and feel the past prosperity of this modern city.

"The historical assets are precious intangibles for Shanghai," said Li Enqiang, research fellow with the National Development and Reform Commission. "The first city foreign financial institutions think about to enter China is Shanghai, signaling the rich historical value of the city."

Long way to go

"The financial system in Shanghai is relatively mature, and Shanghai has become a magnet for financial institututions and professionals," said Fang Xinghai, adding that Shanghai has a potential to become an international financial center.

Fang believes that with the listing of state-owned commercial banks and the deepened reform in the capital market, Shanghai is fast catching up to the international level.

Wu Xiaoqiu, professor with the Financial and Securities Institute of Renmin University, presented the favorable factors for Shanghai to become an international financial center. First is the fast development of the national economy and the country's ever-expanding economic scale. By the end of 2005, the economic scale of China had ranked fourth in the world with an annual GDP growth hovering around 10 percent. This kind of high GDP growth will continue for a long period of time, providing solid economic conditions for Shanghai. Second, China's imports and exports are expanding rapidly, and the frequent international economic exchange will help to turn a domestic financial center into a global one.

"The most important factor is the stable Chinese financial environment," said Wu. Shanghai has always placed financial development as the priority in its strategic development. At present, domestic financial institution reform is drawing to a close. The Industrial and Commercial Bank of China, China Construction Bank and Bank of China have all been successfully listed. Various financial institutions have been brought into the track of sound, sustained and steady development. Furthermore, China has entered an era of excessive liquidity, which enables it to provide services to the international capital market.

"Due to these reasons, I believe that Shanghai will become an international financial center in the near future," said Wu.

Shanghai, with over 18 million residents, is the most populous city on the Chinese mainland. Apart from favor from financial institutions, Shanghai has also won the trust of international industrial tycoons, such as General Motors, IBM and ALU. "It is obvious that Shanghai will become a major financial center in Asia and will likely surpass such status in the future," said Stanley.

It is also acknowledged that there is a long way to go before Shanghai becomes a real international financial hub.

Lu Hongjun, President of Shanghai Institute of International Finance, contends that Shanghai needs to improve in terms of financial innovation, financial risk prevention and financial personnel.

Lu stated that the financial sector' risk management should be further strengthened, as the transparency of the Chinese financial market is not high enough. In terms of financial innovation, although financial derivatives such as stock index futures and options and equity futures are allowed to be traded on the market soon, Shanghai is still lagging behind Hong Kong and Singapore, and even South Korea and India.

Lu suggested that Shanghai should work on its soft infrastructure construction, for instance, the credit system, derivative innovation centers, and transaction and accounting centers. Those indexes are much more important than tangible construction, but Shanghai is still very weak in this area.

Regarding financial personnel, Shanghai lacks senior financial personnel in such fields as company leadership, operational management and product innovation. Experts estimated that Shanghai needs a million specialized personnel to help upgrade it into an international financial center.