THE relationship between the UK and China came into sharp focus over the past week, as Hong Kong celebrated the fifteenth anniversary of its return to Chinese sovereignty.
In this time, China’s economic transformation – underlined by its ascent to become the world’s second largest economy – has been nothing short of miraculous.
That much is clear as I look out at Shanghai’s remarkable skyline while writing this column. The scale of it truly has to be seen to be believed.
As the world’s leading global financial centre, London’s international links are critical to its ongoing success. My visit comes at a time when the internationalisation of Chinese financial markets, and the increasing role of London as a centre for renminbi business, are key issues both in London and in China.
So far, China’s approach to this issue has followed Deng Xiaoping’s sensible maxim of crossing the river by feeling the stones – or taking change carefully, step-by-step.
That said, London is already developing as a centre for renminbi business, and its attractiveness is underpinned by key strengths like its time zone, strong regulatory framework, banking expertise and global foreign exchange trading volumes.
London is the world’s leading centre for foreign exchange – with almost 40 per cent of global turnover – more than New York and Tokyo combined.
It makes sense, therefore, for the renminbi to play an increasing part in that mix. That is certainly the vision of the City of London initiative, which involves seven leading global banks, and is supported by the Treasury.
Another area for partnership includes the development of China’s capital markets.
Continuing to increase international participation in the Chinese capital markets will help Shanghai in its ambitions to develop as a financial centre. Recent increases in the quotas for foreign investment have been encouraging. The development of an international board in Shanghai on which foreign companies can list – much anticipated by foreign firms in China – would also mark an important phase in the development of China’s financial sector.
Such a board would expand investment options available to Chinese households, and transform the excess domestic liquidity tied up in Chinese bank deposits into equity investment in world-class enterprises.
I am often asked if the rise of Chinese and other Asian centres is a threat to London. My answer is that financial services is not a zero sum game: Shanghai, Hong Kong and London can all prosper together. We all work together in partnership, and compete in order to ensure the size of the global pie continues to grow.
In many ways this is a parable for the way that the UK and China have, over a long history, worked together to support the development of Hong Kong. We continue today to work together, for mutual gain, on our common financial development.
Mark Boleat is policy chairman at the City of London Corporation.