Visitors on the Bund, the Shanghai area famous for being a financial center in the 1920s. An American Chamber of Commerce report has suggested it would be unrealistic to expect the city to once again become a global financial center by 2020. [Photo/China Daily]

Shanghai can indeed become a global financial center, although it will take longer than expected, said the American Chamber of Commerce in Shanghai on Tuesday.

The chamber made the comment after Shanghai's ambition of becoming a global financial hub by 2020 got a new boost from the central bank's move to liberalize the country's interest rate formation system, allowing lenders to set deposit rates up to 10 percent higher than the benchmark.

A market-based interest rate regime and a fully convertible currency are widely seen by economists as two prerequisites for Shanghai to achieve its ambition.

The 55-page research report, jointly published by AmCham and the Brookings Institution, looked in detail at the pros and cons of Shanghai's financial industry and came to the conclusion that Shanghai has the potential to become a global center for finance, but probably not as early as 2020.

"The building blocks are in place to create a true international financial center in Shanghai," said Ben Kinnas, a senior vice-president and general manager of Wells Fargo Bank who sits on AmCham's Shanghai financial services committee and led the writing of the report.

He added that 2020 may be "unrealistically soon" for Shanghai to become a true global financial center rather than a regional hub.

"Shanghai has the resources, and has the economy behind it to become a financial center, regional or international," said Tim Huang, chief operating officer for Bank of America Merrill Lynch China.

"I think the regulators and the government do need to look at opening up more on the market side. And there is plenty for both domestic and foreign players to gain in this market and everybody wins if you really open it up."

Shanghai has made rapid progress in developing its financial industry since a central government decision in 2009 called on the eastern city to speed up its process of becoming a large international financial center.

In January, the municipal government vowed to double the transaction volume of its financial markets to 1,000 trillion yuan ($157.38 trillion), as part of its plan to "greatly expand" the size of its capital markets and open them more widely to foreign investors by 2015.

The transaction volumes of the city's stock, bond and commodities exchanges are already among some of the world's biggest. In 2010, the Shanghai Stock Exchange's market capitalization ranked sixth globally, just behind London.

The city has also established shipping and insurance exchanges as part of a move to develop the city's derivatives market.

The AmCham report gave a list of Shanghai's seven key disadvantages, including regulatory opacity and a limited use of sophisticated financial products.

Walker Wallace, a partner at the law firm O'Melveny & Myers LLP, said that the lack of regulatory transparency in China is the main reason many Chinese companies seek listings overseas.

In the report, AmCham recommends that China's stock market transit from an approval-based listing system to a disclosure-based system.

Talent is another issue Shanghai needs to deal with to achieve its goal. And lowering the tax rate is essential to attract financial talents who typically get big paychecks.

The personal tax rate is substantially higher in the mainland than in other financial centers. High-income individuals could be taxed by a rate of 40 percent in the mainland, while the rate ceiling is 15 percent in Hong Kong and 20 percent in Singapore.

"Income tax issues have to be addressed in order to attracting financial service professionals into the country," said Kinnas.

gaochangxin@chinadaily.com.cn