Research On The Establishment Of RMB Offshore Financial Center In Shanghai Pilot Free Trade Zone

Offshore Financial Center is one of the most important components of global financial market. With the financial liberalization and globalization, offshore financial center has become a key part of international financial resource competition among countries. Developing countries should take advantage of this historical trend to achieve leap development in finance industry.This article analyzes the necessity of establishment of RMB offshore financial center for several factors, including improving RMB offshore circulation mechanism, promoting RMB internationalization. Runs through the development profile of offshore financial business in mainland China and the rapid development of RMB market in Hong Kong, and affirms phased development achievement. Meanwhile the article indicates that the mainland offshore finance business developed very slowly while Hong Kong is subject to the defect of unsound RMB circulation mechanism. Therefore, China (Shanghai) Pilot Free Trade Zone was set up to establish the onshore RMB offshore financial center. Furthermore, this article demonstrates that Shanghai has the condition and foundation to establish RMB offshore financial center.In order to establish Shanghai RMB Offshore Financial Center, the operational mechanism of offshore financial market should be confirmed first. Concerning this issue, this article compares three typical offshore financial center model, involved in the three typical case study-London, Singapore and Tokyo, Caribbean region. Take the economic characteristics, level of openness and regulation in financial industry of our country into account, the article proposes that Shanghai should strictly separate the offshore and domestic financial market.The potential risks in Shanghai RMB Offshore Financial Center should be considered at the beginning, and the according regulation scheme should be established to prevent the risks. This article starts with analyzing the potential risk and its transmission mechanism in qualitative aspect which primarily includes the exchange rate risks as the result of currency mismatch and short term capital flows, interest rate risk as the result of imported inflation and deflation, asset bubble as the result of credit expansion, etc. Afterwards, the article builds VAR (vector auto regression) models based on the three stages related data from matured Singapore Offshore Financial Market to conduct an empirical analysis on the impact of the size of offshore financial market asset to financial system in the countries of issue, which provides a reference for Shanghai to regulate the risk of developing offshore financial center in different stage. Based on the qualitative and quantitative analysis, the article makes recommendations for risk regulation of offshore financial market.Finally, this article presents the research on positions, development directions and competition and cooperation relations between Shanghai and Hong Kong while establishing RMB offshore financial center, and provides operational ideas for cooperation between two sides in RMB offshore business and regulation.