In the past three decades, China has achieved world-historical economic growth. Now China is moving toward extensive financial reforms.

What role will Shanghai play in financial deregulation?

In March 2009, the State Council approved Shanghai's plans to develop modern service and manufacturing sectors and to forge itself into one of the world's leading financial and shipping centers by 2020.

In April 2009, five major trading cities got the nod from the central government to use the yuan in overseas trade settlement. Along with four cities in the Pearl River Delta, Shanghai has been designated for this purpose.

In the past three years, the internationalization of the yuan has accelerated, while Shanghai's role as a global financial hub has increased significantly. Today, Hong Kong also ranks as the leading current global financial center, according to World Economic Forum.

During the recent US-Chinese Strategic & Economic Dialogue, China agreed to let foreign banks raise stakes in Chinese banking joint ventures to 49 percent. It was also agreed to let foreign groups establish joint venture brokerages for Chinese commodity futures.

Although China is the world's largest consumer of commodities, global commodity prices continue to be set in London, New York City, and Chicago.

In the future, this is likely to change as the yuan is expected to become a key commodities currency. Some analysts expect that to happen in just 10-20 years. But change could occur faster. Faster yuan internationalization holds the promise for Shanghai's faster financial expansion.

Further, regulators may reserve the right to reduce liberalization at times of turmoil.

After the Asian financial crisis in 1997-1998 and the global crisis of 2008-2009, there is more understanding toward such policies worldwide.

Moreover, higher foreign earnings from international capital market and asset management activities will further increase the power, profitability and status of Chinese banks.

London has already emerged as the yuan offshore center in Europe. It may be time to explore Shanghai-London, Shanghai-New York City and other forums as well.

Soon China may engage in financial reforms in commercial banking lending markets, bond markets, securitization of loan portfolios, competitive entry and in other areas. Many initiatives are being tested in pilot programs.

China's stock exchanges in Shanghai and Shenzhen are moving to allow small firms to sell bonds via private placement, opening another fund raising avenue for the cash-strapped small-business sector.

China's brokerages will be allowed to take on twice as much debt in relation to their net assets, and will be given easier access to the capital markets.

In the West, financial power is on decline. Japan has suffered two lost decades. The eurozone crisis has barely begun. Washington must face the prospects of a fiscal cliff after the fall elections.

Over time, Shanghai is poised to lead as an emerging global financial hub.