Multinationals have further incentive to move their
regional headquarters to Shanghai under new rules released by
the citys Ministry of Commerce. The rules also signal new
measures for RMB convertibility.
Shanghai has been competing with Beijing and Hong
Kong to become Greater Chinas financial hub. Sources said
China must implement the rule of law before Shanghai reaches
its full potential, but the new rules may attract
multinationals looking to build closer relationships with the
The rules are a step towards the Shanghai 2020
plan, which aims for the city to become Asias financial
centre by 2020.
In the last 10 years, MNCs have started to
look to Shanghai to not only set up their China headquarters
but also regional headquarters given the size and increasing
strategic importance of the China market, said Hubert
Tse, a Shanghai-based partner with Boss & Young.
Although this is not the first set of policies
designed to attract multinationals, it includes several
particularly appealing provisions. Regional headquarters that
move to Shanghai will receive a launch subsidy of CNY 8 million
($1.27 million) in the first three years, and there are
less-stringent visa requirements for senior executives.
Mark Schaub, Shanghai-based partner at King &
Wood Mallesons, said that a larger change seems more subtle:
the rules introduce more flexibility in approving MNC
headquarters. The authorities have been given leeway to
approve provided requirements have been basically fulfilled.
This will make it much easier in practice, he said.
The most interesting provisions, however, relate to
cross-border use of the yuan, although details have not yet
been released. Those most interested in these new rules will be
those with huge volumes of trade, such as mining and
Schaub added, However, the regulations are
unclear because the MNCs headquarters in China will be a
Chinese company. Instead, it may mean the parent company will
have further access to RMB convertibility.
He predicted that MNCs with regional headquarters
in Shanghai will be able to utilize RMB for cross-border use,
perhaps in pilot programmes for companies that have shown a
commitment to investing in China.
Tse agreed that these provisions could foreshadow
the implementation of the internationalisation of the RMB. This
includes the proposed launch of the Shanghai International
Board, on which international companies will be able to list in
Although we havent yet seen the rules,
it may be that when MNCs are allowed to list and raise RMB in
Shanghai, the companies will be able to remit part of the RMB
proceeds offshore: it could well represent a scheme to
encourage investors to invest in this new RMB asset
class, said Tse.
Shanghai, Hong Kong or
Shanghai, Hong Kong and Beijing are competing for
regional headquarters. Although Hong Kong is considered the
gateway to China, Shanghai and Beijing are making
Tse said that MNCs would choose Shanghai as their
China or regional headquarters as it is the commercial and
financial centre of China, while others would opt for Beijing
so they could be closer to the government and regulators. An
in-house lawyer agreed, noting that the choice is also
sector-specific: government-backed industries such as IT may
prefer to be located in Beijing.
Hong Kong will probably play a lesser role in
connecting China and the rest of the world going forward, with
Shanghai, Beijing, Shenzhen and Guangzhou are all competing to
fill that role, said Tse.
But he added that Hong Kong will maintain its
unique position as an international financial centre. It will
continue to serve Chinese and global investors due to its
well-established legal system, convertible currency, and
culture and language which are different from mainland
Schaub was less optimistic about Hong Kongs
future, saying that Shanghai is clearly encroaching on its
territory and that it is becoming more niche.. However one of
Hong Kongs biggest advantages over Shanghai is that it is
more attractive from an income tax perspective for companies
employing highly-paid people, such as in private equity.
Shanghai is also becoming more ambitious about its
position in Asia, Schaub observed. In the past, Shanghais
rules were primarily viewing China headquarters, but the more
expansive wording looks to Asia, Asia-Pacific and even larger
He commented, Shanghai authorities want the
city to be more than just a companys China headquarters:
now theyre looking at the region, maybe even
Is Hong Kong the financial hub of the
Shanghai and Singapore as competitors
IFLR is holding its eighth annual Asia
Capital Markets Forum on November 15 at the JW Marriott Hotel,
Hong Kong. For full details see www.iflr.com/ACM2012