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 also plans to start trading nondeliverable futures contracts on the yuan this summer, Chow said. And while officials directed General Motors in 1997 to open its initial Chinese car assembly plant in Shanghai, it steered Airbus last year to select Tianjin for an aircraft assembly plant.

But Shanghai is becoming an important center of commodities trading. It has just passed Tokyo as the biggest market for trading natural rubber, testimony to the buying power of Chinese industrial companies.

Hong Kong has very little commodities trading, losing much of its former role in international gold markets. Hong Kong gold prices were quoted around the world in the 1980s, but have become much less important as the handful of local gold traders continue to do business exclusively in Chinese and have not welcomed international banks and trading houses.

Mainland China still has many restrictions on the private ownership of gold, slowing but not preventing the creation of a modern gold market in Shanghai with ambitions to become an important force in global trading. Shanghai is also setting up futures markets to allow Chinese traders to place bets on the direction of the country's interest rates.

Experts said that Shanghai was likely to become an increasingly formidable competitor in years to come and expressed doubt that Hong Kong leaders would succeed in persuading the Chinese government to give their city clear regulatory preference over its rival to the north. Beijing officials are still more likely to think of Shanghai than Hong Kong as a domestic financial market entitled to regulatory favors.

"Shanghai is in a temporary eclipse because of these political factors," said Jack Lange, a partner in the Hong Kong office of the law firm Paul, Weiss. "But Shanghai is where it's happening -- if there is going to be a domestic financial center that gives Hong Kong a run for its money, it's going to be Shanghai."

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