Institutional breakthroughs will secure megacity's heft as IFC

Residential savings have been rising constantly in China. Data from the People's Bank of China, the country's central bank, show that residential savings increased by 9.22 trillion yuan ($1.26 trillion) in the first quarter, up 7.7 percent year-on-year, significantly outnumbering the 1.74 trillion yuan of incremental savings from nonfinancial companies.

Increase in residential savings is not always good news. On the one hand, it indicates that people are becoming more conservative, which can be a result of concerns over the current market and uncertainties about the future. On the other, it suggests that there are not too many options for them to invest.

Combined with inadequate domestic consumption, a series of worrisome chain effects will follow: slow sales of end products, declining prices, lower profitability of enterprises, companies that are less willing to invest and borrow, and finally, slower and even stagnant economic growth.

This is actually what Japan has undergone since the 1990s, which is widely known as "Japan's three lost decades".

But there is something that Shanghai can do to avoid Japan's experiences, which is in turn conducive to consolidate its role as an international financial center.

The increasing wealth of the Chinese people has led to rising demand for investing globally, which is the logic found in other mature markets.

According to a recent report by UBS, 77 percent of Chinese investors wished to get global investment information and analysis. About 61 percent of them also look forward to globalized products and strategies provided by asset managers.

Shanghai, which is home to the biggest group of financial institutions in China, can address this demand by making more first attempts. A large number of high net-worth individuals living in the city need more channels to invest globally so that they can diversify risks, which is especially true when uncertainty and complexity have become buzzwords in the global market.

The progress made in introducing more cross-border financial products will benefit domestic financial service providers. Securities firms will be able to expand their cross-border product portfolio, increasing their footprint in overseas markets.

This is also in line with the trend of increased outbound reach by securities brokerages. Apart from investment banking services, such as helping Chinese companies go public in overseas stock markets, wealth management services are equally important if securities brokerages aim to secure their position as leading firms in the Chinese market.

By addressing Chinese retail investors' demand with more cross-border products, the securities firm will consolidate its own wealth management strength.

Hopefully, an increase in cross-border financial products will prompt the regulator to further increase the annual quota for qualified domestic institutional investors, under which an asset manager is allowed to help its clients invest in overseas markets each year.

This is also in line with Shanghai's role as a pioneer on many fronts. Apart from various substantial developments, it should aim for more institutional breakthroughs.

More new policies, mechanisms and institutional arrangements should be nurtured here so that these successful experiments can be eventually promoted nationwide. Starting from the micro level, addressing retail investors' demands may usher in bigger changes.