Shanghai's global shipping hub ambitions take essential cargo on board

Shanghai is moving full steam ahead with plans to turn itself into an international maritime hub, aided by China's efforts to promote the RMB as a medium of foreign exchange and by new financial services and products related to the shipping industry.

That progress is reflected in the joint plan unveiled by state-owned Bank of China and the People's Insurance Company of China to improve shipping safety, promote trading convenience and support green industry standards.

"You can't build a real international shipping center without comprehensive financial services and a variety of financial products to choose from," said Dr Qian Jun, professor of finance and executive dean of the Fudan International School of Finance.

"The financial services arm of the shipping sector still isn't up to par with China's world-leading shipbuilding capacity or port throughput, though there has been a lot of improvement," he said. "Many new products and services are in the pipeline and will be open to foreign investors. From trading to financing and leasing, insurance and reinsurance, and the arbitration and settlements of contract disputes – basically, everything should be available in Shanghai, efficiently and conveniently."

The Port of Shanghai in January hit a one-month record of handling 5.1 million 20-foot equivalent units (TEUs) of cargo, following a record 51.5 million for the whole of 2024.

The China Association of the National Shipbuilding Industry reported that 74 percent of all new orders last year were booked by Chinese shipyards, with a 78.5 percent ratio for green-vessel orders alone.

Yet, it was only in 2015 that the Shanghai Institute of Marine Insurance, representing the Chinese marine insurance market, joined the International Union of Marine Insurance.

China's market share in global marine insurance was 13 percent in 2023, and the nation's first foreign-related ad hoc maritime arbitration was concluded last year in Shanghai.

In an interview, Shanghai Daily asked Dr Qian for his thoughts on the city's plan to bridge the gap with global maritime financial services.

A tenured finance professor at the Carroll School of Management of Boston College before returning to China, Qian just concluded a preliminary study of further developing the financial sector for the municipal government's pending 15th Five-Year Plan (2026-30).

Q: Recently, there have been a few notable shipbuilding deals denominated in RMB, but it is often reported that foreign firms and institutions are still hesitant about the use of the Chinese currency. Why is that and how can that change?

A: There are a few steps to consider when we talk about the further internationalization of the RMB. The first step is cross-border trade. In this respect, the RMB has risen significantly to fourth place in global payments, and more countries are signing currency-swap agreements with China. The natural question is what you can do with Chinese yuan other than buying and selling goods?

Of course, investors don't want it to be just sitting in banks.

Let's take a Brazilian farm owner, for example. When he ships soy beans to Shanghai, he has the cargo manifest and warehouse receipts, which he can use to pledge and receive credit among other options, and there should be options for a variety of possible durations, even if just overnight.

After a few rounds of shipping and trading, with some money in hand, the farm owner may say, "I want to set up in a warehouse of my own in Shanghai, and if I still have leftover money, I want to check out what other types of investment opportunities are available ..."

All the services involved in these transactions should be handled easily in Shanghai, with an increasing number of products in the investment portfolio, all denominated in Chinese yuan.

There is no point for either the Chinese side or the Brazilian farm owner to settle any of the above transactions in another currency and endure currency risks multiple times.

Some of these services and products are already available; others are on the way.

Q: What kind of products and services are we talking about?

A: Many new products have emerged in recent years. For example, the Shanghai International Energy Exchange listed Containerized Freight Index (Europe Services) Futures in August 2023. That market offers China's first shipping-related derivatives, which provide an effective risk-management tool for shipping market players to hedge freight-rate fluctuations.

By the end of last year, its total trading volume neared 4 trillion yuan (US$550 billion).

There are so many possibilities in the future, thanks to China's strong manufacturing industry, which can now build everything from airplanes to liquefied natural gas ships. We can design financing for cargo ship and C919 buyers like that provided for buyers of other types of airplanes, along with the financial leasing business and other related products. Just as how Boeing planes once contributed to the global use of dollars, China's own ships and planes can help popularize the RMB.

Insurance is also a big sector, which includes reinsurance as mentioned above. Shanghai aims to build an international reinsurance center, and therein lie big opportunities for international insurance companies and other financial institutions.

AXA International Reinsurance just became the first foreign company of its kind to get approval to set up an operations center in Shanghai's free trade zone. There are 19 such centers now.

Q: Since you mention insurance, what about contractual arbitration? Companies still go to London for arbitration?

A: True. Traditional financial centers like London and New York, and especially London, still dictate nearly all the rules and guidelines currently used in the financial services worldwide. London has the obvious advantage of its 200-year history of relevant cases.

Shanghai, as a newcomer in the realm, will have to prove itself to be equally professionally competent and efficient, while offering lower service rates to attract global participants and build its reputation over time.

Q: When we talk about RMB-denominated products and services, does that mean betting on investors' confidence in China's currency?

A: If the question is about the choice of currencies for a particular type of transaction, then it does depend on the investor's confidence in the chosen currency.

In practice, the choice among a list of currencies is related to a host of factors, one of which is the exchange rates between a pair of currencies, which in turn depends on the relative strength and prospects of the real economies and purchasing power of a currency, among many other factors.

The confidence in the US dollar is currently facing some uncertainties – for instance, possible return of high inflation (in part due to tariffs and trade retaliation), a correction in the stock market, as well as a slowdown in the economy.

The confidence in the Chinese economy has been boosted by recent news in the AI sector as well as consumption with the blockbuster movie "Ne Zha 2."

The status of the RMB can certainly rise both as a "safe-haven" currency and a currency of choice by investor as long as there are more attractive financial products to invest in.

The maritime sector, along with the associated financial products and services, is an emerging market that offers many opportunities.

Q: In other words, you are also betting on confidence in China's economy?

A: Of course. You have probably noticed the recent change of tone from everyone, including and especially from foreign investors and institutions.

President Xi Jinping's reiteration of China's commitment to boosting the private sector at the recent symposium on private enterprises is surely another factor.

The aforementioned AI explosion created by DeepSeek and the box office success of an animated movie have changed some previously held views on China's ability to innovate, and its economic vitality.