The teeming Chinese metropolis of Shanghai could become the world’s largest financial center in a decade, according to a report from KPMG and FTSE.

As China further develops its financial markets and the Shanghai stock exchange launches its international board, Shanghai will rival, or possibly even surpass London and New York, as the globe’s premier financial hub.

The listing of foreign companies on Chinese exchanges would allow them to raise funds and represent a significant change.

A debut [of the international board] could conceivably occur before the end of 2011, the report said.

According to reports, the Chinese stock market has skyrocketed in size and value from $400-billion in 2005 to $4-trillion in 2010, while more than 500 companies have gone public.
There is also huge potential in debt and derivate markets, which are currently in their very early stages of development in China, the report stated.

Still, there are some obstacles to Shanghai’s future growth.

Shanghai is still some way behind other financial centers in terms of market openness, size and variety, as well as sophistication of products, the report said.

The report suggested that China would need to liberalize its tightly-controlled currency market and allow freer movement of money in and out of the nation.

Also, China’s high tax rate for individuals (as high as 45 percent) presents a problem. In comparison, the rate is only as high as 15 percent in Hong Kong.