Thu, Jan 18, 2007 - Page 9 News List

Hong Kong and Shanghai duel

Boasting a clear endorsement by the Chinese government, Shanghai has become an increasingly formidable rival to the financial giant

By Keith Bradsher and David Barboza  /  NY TIMES NEWS SERVICE , HONG KONG

Hong Kong and Shanghai are locked in an increasingly public struggle to become China's main financial center as a top-level committee in Beijing prepares to meet later this month to map out a national financial regulatory strategy.

On Monday, Hong Kong's highest government leaders and best-known business tycoons made the city's case at a series of televised conferences and briefings.

They called for China to continue letting the biggest state-owned companies make their initial public offerings in Hong Kong, allow the yuan to circulate more widely and dismantle many remaining financial barriers.

Shanghai's efforts have been less public. They have also been harmed by a spreading corruption scandal that has led to the arrest of the city's top Communist Party official and a growing number of business leaders.

But as the traditional center of Chinese business life, Shanghai still has many allies in the capital. It has also emerged as the center of Chinese bond trading and as a favorite headquarters for Chinese and foreign companies.

The jostling between the two cities is coming close to name-calling. Ronald Arculli, chairman of the company that runs Hong Kong's stock exchanges, said that just as New York is the main financial center for the Americas even though Chicago or Toronto may not like it, Hong Kong is poised to become the main international financial center for Asia.

Asked if he was suggesting that Hong Kong was becoming like New York and Shanghai like Chicago, Arculli said twice that this was his goal, adding: "We stand a decent shot of making it there."

That is hardly the view from Shanghai. City leaders and academics point out their biggest advantage: The currency circulating in the streets and markets is the yuan, which foreigners can buy and sell only with difficulty.

Hong Kong has its own currency, the Hong Kong dollar, which is linked to the US dollar. The Hong Kong dollar is internationally convertible but cannot be easily exchanged for yuan on the mainland because of China's capital controls.

"The independent monetary system restricts Hong Kong's ambition to become the financial capital of the country," said Pan Yingli (潘英麗), a professor in the School of Management at Shanghai Jiaotong University.

In back-to-back ceremonies and briefings on Monday at the main government offices in Hong Kong and at the convention center, Hong Kong officials tried to exploit Shanghai's temporary political weakness and push Beijing into making Hong Kong the primary financial center of China.

"If we do not act now," Bank of East Asia chairman David Li (李國寶) warned at a government briefing, "inertia will set in and business will gravitate to established financial centers overseas."

Hong Kong and Shanghai are not just competing with each other -- they are also vying with Tokyo and Singapore to become the most important financial center in Asia. Each wants to be the place where investment banks, hedge funds, insurance companies and other big investors send their best and brightest to oversee trading during the hours after the sun sets in New York and before it rises in London.

Intense rivalry

Each city has its strengths. Tokyo has the region's largest stock and bond markets, although they have attracted less attention lately because they lack the appeal of the Chinese economic boom. Singapore is the main center for trading oil and other energy products and is an important hub for currency trading.

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