Shanghai landlords who own premier office space in the city’s Lujiazui CBD are dictating their prices as tenants, mostly renowned international financial firms, fall over themselves to secure leases.
The city’s commercial leasing market is seeing a bonanza with big-ticket and even en bloc transactions since this spring.
JP Morgan has reputedly signed a deal to rent seven floors, close to 10,000 square meters, in the high zone of the 119-storey Shanghai Tower, the world’s second tallest skyscraper. Across the street from the imposing landmark that features a futuristic spiry curve, Morgan Stanley is also expanding inside the 101-storey World Financial Center, which is already seething with activity with other American and foreign financial behemoths moving in.
Bank of Tokyo-Mitsubishi UFJ, for instance, has expanded its presence with offices across the city totaling 10,000 square meters.
Shanghai’s official mouthpiece Jiefang Daily reported this week that more than a dozen leading foreign investment banks, insurers and asset management firms had established footholds in the city or expanded their portfolios of services after April when Chinese watchdogs scrapped the cap on foreign shareholdings.
An official with Shanghai municipal government’s financial regulatory office told Asia Times that applications were piling on their desks and that “the entire Wall Street seems to be moving into the city.”
Beijing has made good on the pledge from Premier Li Keqiang, who said at the 2019 Summer Davos that stumbling blocks would be removed to help foreign firms establish fully-owned subsidiaries or buy shares in China’s financial sector.
In April, China Banking and Insurance Regulatory Commission rescinded laws banning full ownership by foreign security brokers, fund management firms, futures traders and insurers, a year ahead of the original plan. And in August, the watchdog’s president Guo Shuqing greenlighted BlackRock’s application for a Shanghai-based, wholly-owned fund management company without a Chinese partner, the first of its kind in mainland China.
Xinhua also said that Beijing had pressed ahead with market liberalization to dismantle regulatory hoops. The state news agency cited the Commerce Ministry as saying that the number of sectors on the nation’s negative list banning or restricting foreign investments had been trimmed from 190 items in 2013 to about 30.
The ministry said the gates to China’s massive financial services sector, once in a state of insularity, had been swung open for international investors, including those from the US, with all barriers being pulled down other than capital account and exchange controls.
Craving unshackled access to the biggest financial market in Asia, Goldman Sachs has since March increased its stakes at its joint venture with a Chinese stockbroker to pave the way for a full takeover, while JP Morgan has also been on a spree buying up shares from its SOE partner Shanghai Trust to wrest more control over the 150 billion yuan (US$22.47 billion) fund management house, according to the Southern Weekend newspaper.
A senior policy analyst at the Shanghai government’s financial regulatory office told Asia Times on the condition of anonymity that more foreign banks and financial firms would make a beeline for the city, already China’s largest domestic financial center.
“When Chinese watchdogs grant licenses to foreign firms they require localized fundraising, investment and management, thus foreign investors used to pick local partners with equal shareholding,” the analyst said.
“But Western banks and brokers always gasp for full control over their outposts and JVs in Shanghai and elsewhere across China to avoid a draw in voting in case they do not see eye-to-eye with local partners.
“Now the policy loosening and no cap on shareholding mean a big incentive for them to enter China and expand.”
The flurry of foreign financial firms is also hoovering up the renminbi-denominated assets as they are lured by the interest margin when zero and negative interest rates across major Western markets have added to the appeal of Chinese assets.
Lu Lei, deputy director of the State Administration of Foreign Exchange, revealed when addressing a forum in Shanghai in June that the inrush of foreign capital amounted to US$200 billion in the past 12 months.
Amid stiffer competition and the possibility of being turfed out of their JVs with foreign counterparts, Chinese lenders are now scrabbling to roll out full-range services to retain clients, while howling for more policy guarantees from Beijing.
China Securities Regulatory Commission announced in June a plan to grant broker licenses to domestic commercial banks, and before long the Industrial and Commercial Bank of China and China Construction Bank have emerged in the rumor mill as the most likely recipients of full licenses to compete with Wall Street banks.