CHINA – By R5. The Great Shanghai Taxi Ride

I had the great honour of sharing a ride from the airport to the conference hotel with Galen Stops, Editor of PnL – but about an hour into the journey it was apparent that Driver 530 was lost, and after sharing our best taxi ride stories from around the world – we were now a bit bored and quite keen to actually arrive at said hotel.

First Published: e-Forex Magazine 59 / Recent Events / January, 2015

Financial Innovation and RMB internationalisation, are two of the four stated directives of FTZ

Financial Innovation and RMB internationalisation, are two of the four stated directives of FTZ

Fear not ! Driver 530 had now contacted a friend who has assisting him with directions to what I believe is one of, if not the, tallest building in Shanghai. Easy to find you might think, but it then became apparent the man on the other end of the phone – was also lost. Alas we had found ourselves in the one taxi in the world who doesn’t have a map or GPS on his phone – unusual for China one might think.

The journey does perhaps best described China’s nascent financial markets - A bit lost but getting there safely in the end.

The conference touched upon many of the exciting and yet difficult to achieve opportunities offered by the new Chinese financial system. The Shanghai Free Trade Zone ( FTZ ) the Internationalisation of the RMB and the merging of onshore and offshore markets.

The FTZ – a little like our taxi hasn’t got off to the strongest start. Some commentators blaming this on regulatory issues rather than commercial reasons. Where local regulators may see the FTZ as the reform that just ate their job. Zhang Hong, Director of the FTZ highlighted a shift from a list of ‘what is allowed’ in the FTZ to now a list of ‘what is not allowed’ in the FTZ. Ideally opening up commerce, trade and opportunities for a broad range of activities that aren’t on the bad list. Financial Innovation and RMB internationalisation, are two of the four stated directives of FTZ.

A number of the local bankers commented on the lack of international trading knowledge amongst the domestic banks, and how many were sending traders to dealing rooms in Hong Kong and Singapore to get some experience under their belt before being called back to run things in Shanghai. The average time however was 3 – 6 months which I think isn’t quite long enough but a great opportunity for the ACI dealing course and Model Code. Albeit in Chinese.

Sun Lijian, Professor, Deputy Dean of Fudan University School of Economics had some very interesting insights into the future of RMB and the economy at large. Saying that USD and QE have had a massive affect on Chinese growth and policy decisions, and that microeconomics is more important for RMB internationalization than one might imagine. Drawing on the examples of the past - JPY had property dependence for THB it was manufacturing. China being keen to avoid such dependencies. 

Perhaps the most intriguing was his view that RMB Bonds could become future global safe haven instruments for low risk investors. Which might also currently be a little lost but get there in the end.

The Taxi ride back to the airport was all together a very different affair.

Half the time, direct to market and certainly at low latency speeds. Certainly a sign of things to come.