• The Mainland government's plan to transform Shanghai into an international financial centre by 2020 is part of a bigger plan to internationalise the Chinese renminbi (RMB). The Mainland wants the RMB to play a bigger role in the world market, especially after the global financial crisis which saw the US dollar tumble under the weight of massive government debt. A bigger, deeper and more developed financial market will facilitate the internationalisation of the RMB.

• Shanghai is already a national financial centre of Mainland China by most measures, but it is still some way behind the world's leading financial centres in terms of market openness, market size and the variety and sophistication of products available.

• However, Shanghai has clear advantages over many of its regional competitors to becoming an international financial centre, including the back up of one of the world's most dynamic economies and favourable government policies.  How far it can close the gap with the world's leading financial centres will depend on how fast the Mainland will remove the constraints that presently restrict the city from becoming a world financial centre, including capital control and the inconvertibility of the RMB.  That, in turn, will depend on how the authorities weigh the benefits and risks associated with the internationalisation of the RMB, and how fast the country can build up the necessary infrastructure for defending against any such risks.

The Mainland government unveiled on 29 April a plan (hereafter the “Plan”) for establishing Shanghai as an international financial and shipping hub by 2020.  Not surprisingly, the Plan has aroused widespread interest and discussion on the Mainland and Hong Kong, especially regarding the implication of the Plan for the convertibility and the international role of the Chinese renminbi (RMB).

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