China's financial hub Shanghai has visioned to become an international financial center for a long time. With an increasing number of U.S.-listed Chinese companies seeking for re-listings back home, the question about whether Shanghai can be the new home they desire is getting new attention. 

"The development of the financial market in Shanghai is very good, but in general, it is not really international yet," said Zhou Xiaochuan, China's former central bank governor, in a video speech in the Lujiazui Forum of top financial regulators in Shanghai on Thursday, citing several challenges and advantages for Shanghai to be an influential world-class financial center. 

One of the challenges was exposed by the multi-million-dollar accounting fraud of China's coffee brand Luckin Coffee. The scandal has, to some extent, triggered a crisis of trust in Chinese firms listed in the United States.

The recent scandals have left U.S.-listed Chinese firms in a more challenging situation to operate in the U.S. market. The U.S. Securities and Exchange Commission even publicly warned of the risk involved in the U.S.-listed companies, which is rare. 

Zhou said the Luckin scandal and the occurrence of short-selling of some Chinese companies by Muddy Waters Research reflect a gap between Chinese accounting practices and international standards.

However, "some have linked the issues of transparency and audit quality with national economic security concerns and think that no solution can be found, which I can't agree with," he said.

A China policy in 2009 restricted overseas regulators' ability to supervise auditors based in China, requiring any foreign watchdog that wants to conduct an onsite inspection of a Chinese company to first seek approval from relevant authorities, which has long been complained by the U.S. regulators.

In May, the U.S. Senate has passed a bill that would require overseas firms to follow U.S. standards for audits and other financial regulations; some presumed that the move is targeting Chinese firms. To become law, the measure must pass the House of Representatives and be signed by the president.

If the bill becomes valid, it could threaten the listings of nearly 250 Chinese mainland- and Hong Kong-based companies whose shares are traded in the U.S. and whose auditors are under China's jurisdiction, according to the latest review of the Public Company Accounting Oversight Board.

The recent moves of the U.S. have prompted Chinese big names listed in the U.S. including e-commerce giant JD.com Inc. and online game company NetEase Inc. to carry out secondary listings in Hong Kong and more companies are expected to follow suit.

Zhou said whether Shanghai can take this opportunity to accelerate development and truly build an international financial center still faces many uncertainties. 

"If China is determined to achieve substantial development in this area, it must focus on internationalization, strengthening international cooperation, and building Shanghai into a center with more international institutions and much improved capital transactions," Zhou said. 

Zhou listed positive facts of Shanghai having the re-listings of the U.S.-listed Chinese companies, for example, a high savings rate. The savings rate of Chinese residents is 40 percent of GDP – much higher than the saving rate of American residents, which will provide the U.S.-listed Chinese companies an alternative financing source.

Despite recent scandals, there are plenty of Chinese companies of high quality, and companies and regulators are willing to push forward further changes, he said.

Speaking of transparency, corporate governance, and audit of listed companies, Zhou said China has the same desire and motivation to stand in line with international standards. Chinese regulatory authorities have cracked down on many frauds, market manipulation, and false information. 

"But there is also a process to gradually improve corporate governance and raise companies' awareness of improving accounting and auditing practice," he said.

Additionally, China has been working on the opening-up of its financial sector, many of the recent policies are related to market access.

The launch of the Shanghai-Hong Kong Stock Connect and the Shanghai-London Stock Connect also has greatly enhanced the openness of the Chinese capital market, while continuing to improve, Zhou said. 

(Cover via VCG)