Transcript Slide 1

Simon Stokes
Financial Services Council
Annual Conference
Brisbane, August 2013
All Eyes on China
Opportunities for the
Australian Financial Services
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www.ChinaAcumen.com
Imagine
setting up
your financial
services
enterprise in
a ‘Singapore’
but located
in . . .
Shanghai!
Introduction
 Spent 7 years living and
working in Shanghai
 Original 2006 Austrade
China financial report
 Lucy Qian and Adam Zhang
 Identifying and actioning
tangible entry points
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We Got it Wrong in Late 2006!
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Our 2006 Prediction – What Went Wrong?
 Hu Jintao turned clock back from 2005
 Shift back to State Owned Enterprises (SOEs)
 Focus on re-regulating the economy i.e. CSRC/CBRC
 As always the CPC focus on increasing control
 Winter from 2005-2013 – 8 years
 . . . but it’s Spring again!
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Shanghai ‘Unique’ Characteristics
 1920s China’s
commercial capital.
300k foreigners
 Foreign businesses
served by
‘comprador’ network
 Shanghai missed out on
developments after 1949
 Only early 1990s
distrusted Shanghai
began take-off
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Source: https://mail.google.com/mail/u/1/#inbox/14024942c3fbd448
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Xujiahui: 1980s and Today
Source: https://mail.google.com/mail/u/1/#inbox/14024942c3fbd448
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Shanghai ‘Unique’ Advantages
 Population 20+ million.
Central China location
 Superb hardware
Global DNA ‘software’
 World’s best educational
system - Bill Gates (TED)
 Shanghai the next Shenzhen
for financial services?
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Breaking News: Shanghai FTA!
 Li Keqiang approves Shanghai Free Trade Zone
 28 km2 in Pudong. Four existing areas.
 Goods imported, manufactured and re-exported
 Limited Customs intervention. First in China
 Testing ground for foreign-related reform
 Investment, trade, financial services and regulations
 Pilot capital account liberalisation and RMB convertibility
 Red tape for foreign companies will be reduced
 ‘Restricted’ industries to be open to foreigners
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FTA Some Detail
Shanghai
CBD
 Yang Xiong Shanghai Mayor
WaiGaoQiao
Industrial
 Institutional innovation
rather than preferential
policies
Pudong
Airport
 Launch test operations
on various policies.
Controlling risks
 CRITICAL: gradually work
out complete regulations
 Your ‘Singapore’ in
Pudong, Shanghai!
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YangShan
Port
FTA More Detail
 Significantly reduce administrative intervention re
cross-border capital flows and movement of goods
 Widening scope of businesses open to foreign investors
 Outbound investments to be much easier
 Explicit: interest rates within FTZ liberalized
 Market forces will determine capital costs
 Trade in commodity futures domestically
 Bonded warehouses: allowing physical delivery
of commodity futures traded in overseas exchanges
 Currency? Yuan to flow freely in and out of FTZ?
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Economic: Critical Role of Shanghai FTA
 Current China dangers
 WMPs out of control
 Property bubble
 ’Grey’ banking
 Regulation/corruption
 Slowing and rebalancing economy
 Freeing up private enterprise
 Less role for government corruption
 Financial repression/interest rates
 Better allocation of investment flows
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Political: Critical Role of Shanghai FTA
 China failure re WTO
 Wants to engage globally
 FTZ to enter TPP?
 Re-engage with
foreign businesses
 Needs 20-30 years
of reform for success
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Will it be Derailed? ChinaAcumen Prediction
 Naturally there is
some internal opposition . . .
 . . . Glaxo under the hammer
 Vested interests using GSK as problem
 Hu YaoBang ‘reformist’ family connection
 CSRC/CBRC opposed but over-ruled
 Allowing Tianjin and Qianhai to progress
 Reasons for optimism . . . Chen family
 Chen Yun (father) one of the ‘Eight Elders’ of CPC
 Chen Yuan (son) PBOC/CDB – side-lined!
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Opportunities for Foreign Financial Services?
 Wish attract foreign/domestic financial firms
 Foreign banks able to set up subsidiaries in FTZ
 Less regulatory paperwork. Register not submit contract
 Aim: become an international financial centre by 2020
 Chinese banks can conduct offshore banking in the FTZ
 Commodities trading in FTZ considered as offshore
 Foreign commodity exchanges to own warehouses in FTZ
 Direct competition to Hong Kong as
China’s sole offshore banking centre
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Opportunities for Australian Financial Services
Pension Underfunding
 Opportunities
for Australian
financial services
entities?
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Opportunities: Pensions
 Superannuation fund technologies
 Fund managers advising China pension funds
 2011 NCSSF announced overseas fund managers
(in progress?) with specific expertise in




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Global real estate property securities
Global resources securities
Emerging (ex-China) markets local currency bonds
Balanced portfolio with multiple asset classes
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Asset Managers: The Players
 Banks – stranglehold
on distribution
 Brokers – leveraging off
their large client bases
 ‘Trusts’ – quasi-legal
flexible distributors
 FMCs – currently adrift
waiting for market uptick
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 Insurers – massive assets
to put into market
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Asset Management: The Environment
 Struggle against distribution
dominance of 4 major banks
 Investors trust banks. So
products sold without advice
 Given lack of sophistication.
Above will not change soon
Will the Shanghai
FTZ ‘kick-start’
the process?
 CSRC aware of need to
‘liberalise’ regulatory
framework
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Distribution Opportunities
 Stress: little likelihood
of new investment
channels emerging
 Investigate:
establish WFOE to
advise JV FMC re
global allocation
Current online offers
confusing, dysfunctional
 Foreigners set up
WFOE although
unclear re activities
permitted
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Potential rewards high
but regulatory hurdles
Worth monitoring
developments
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Obstacles
 Foreigners face
disadvantages
against ‘local’
competition
 Most foreign brands
cannot compete
against local banks
 Limited supply of
experienced
financial services
professionals
 High turnover of staff
due to lack of share
option availability
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 Little opportunity to
market products
directly to local
population
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Scramble for China
 Virtually no Australian
financial services exports
 Australia in relatively
excellent financial shape
 Other nations in
unfortunate financial
condition
 So currently exerting huge
efforts to enter China
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Bridge to Shanghai
 Importance of
Shanghai dialect
Lucy Qian and
Adam Zhang
 On-the-ground
China experience
China: Simon Stokes
and Lucy Qian
 Australian
financial services
Simon Stokes 20+ years
Australian expertise
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Welcome to Shanghai FTZ!
All aboard the Fast Train!
Fast
enough
at
431kph
or
7.5% pa?
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http://www.youtube.com/watch?v=-DOPQrVSHiY
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