Shanghai's efforts to build itself into an international financial hub suffered a blow when Beijing granted greater autonomy to its high-tech rival, Shenzhen, aimed at boosting its role as a model for the country's development, according to analysts.
With the southern city neighbouring Hong Kong now able make its own laws on market liberalisations, Shanghai, formerly a front runner in making economic and financial reforms, finds itself under mounting pressure to maintain its status as mainland China's primary economic locomotive.
"Shenzhen would race ahead of Shanghai in terms of opening up [its economy to foreign investors] if it were to effectively enforce the favourable policies granted by the central government," said Wang Feng, chairman of Shanghai-based financial services company Ye Lang Capital. "After all, Shenzhen is now able to further open up its financial markets through incentives which were [previously] given to Shanghai exclusively."
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On October 18, the National Development and Reform Commission (NDRC) published a list of 40 specific areas in which Shenzhen could make reforms or undertake new ventures in the coming years.
Among them, Shenzhen, a former fishing village that became the first of China's 220 special economic zones four decades ago, is allowed to launch stock index futures, issue Chinese depositary receipts (CDR) shares and relax capital controls.
The incentives could threaten Shanghai, as the mainland's financial and commercial capital looks to join a list of global elite cities such as New York and London by attracting foreign capital and talent.
In 2009, the State Council, China's cabinet, set a goal to establish Shanghai as a global financial centre by 2020 in tandem with Beijing's ambitions of making the yuan an international currency.
But the Chinese currency has yet to become freely convertible under the capital account, since cross-border investments in fixed assets and equities are still subject to regulatory approval.
At present, Shanghai is the only city on the mainland where CDR and equity-based financial derivatives known as stock index futures are traded.
Depositary receipts are bank certificates representing shares transferred to a custodian bank before they are bought and traded by investors abroad.
The Nasdaq-style Star Market at the Shanghai Stock Exchange, which was ordered into existence by Chinese President Xi Jinping, is home to China's first CDR, a major liberalisation to attract foreign-funded mainland technology firms.
On September 22 the securities regulator approved Ninebot, an electric-scooter maker, to issue CDR shares on the technology innovation board.
Under the NDRC's guidelines, the Shenzhen Stock Exchange will be allowed to accept issuances of CDR shares on the ChiNext, mainland China's other board geared towards tech start-ups.
Mainland officials tend to play down talk of rivalries between its developed cities and Hong Kong, highlighting instead their complementary roles and the country's vast size that can ensure their coexistence.
But two Shanghai government officials who declined to be identified admitted there had always been a tug of war among mainland cities to compete for foreign capital and talent.
It is certain that Shenzhen's drive to turn itself into what the Chinese government calls a "socialist model city" would divert the attention of foreign investors and professionals away from Shanghai.
"Financial resources are limited, and the mainland does not have enough world-class institutions like banks, investment banks and insurers to support the growth of several global financial centres," said Yin Ran, an angel investor in Shanghai. "It seems that Shenzhen will have an edge over Shanghai in further liberalising the financial markets."
Chen Bo, a professor at Huazhong University of Science and Technology and an adviser to local governments, said Shanghai could focus on bolstering international trade to reinforce its ascendancy in the commercial realm.
Over the next two decades, more financial liberalisation with greater depth and width will be carried out in Shenzhen, he added.
Shanghai has a population of about 25 million people and covers an area of 6,300 sq km (2,432 sq mi).
Shenzhen, home to 13 million residents, covers 1,997 sq km.
Shanghai is developing Lingang, an untapped area with nearly 900 sq km of land that connects to the Yangshan deep water port, into a boomtown where free cross-border movement of cargo and capital is allowed.
Tesla, the American electric carmaker, began delivering locally-built Model 3 cars from its so-called Gigafactory 3 in Lingang at the beginning of this year, which propelled it to the top spot on the list of electric vehicle brands in China in terms of sales.
According to the China Passenger Car Association (CPCA), retail sales of the home-grown Model 3 totalled 79,908 units for the first nine months of 2020, almost 50,000 units more than that of the runner-up Aion S.
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2020 South China Morning Post Publishers Ltd. All rights reserved.
Copyright (c) 2020. South China Morning Post Publishers Ltd. All rights reserved.