China: Shanghai Free-Trade Zone to Be Launched on September 29

Shanghai’s free-trade zone is set to open on Sunday in the Pudong area of the city. Photo: George Chen

According to CCTV, the State Council’s recent issue of the “General Scheme for China (Shanghai) Free-Trade Zone” marks the official launch of the pilot reform of Shanghai Free-Trade Zone.

The Scheme mentions that Shanghai Free-Trade Zone shall persist in giving priority to implementation and test in order to boost reform and development by opening-up and strive to establish within 2 to 3 years a pilot free trade zone with convenient investment and trade, free conversion of currency, highly efficient and expedient supervision and regulation and an environment regulated by the rule of law.

The Scheme raises the following requirements for the pilot zone. First, it shall speed up the transformation of government functions and promote improvement of government administration so that attention will be switched from examination and approval prior to matters to regulation during and after the matters. Second, it shall further intensify the opening-up of financial, shipping, trade and cultural service sectors and explore the establishment of management by negative list. Third, it shall deepen the pilot project of international trade settlement center to boost transformation of trade and upgrade international shipping service. Fourth, it shall speed up innovation in its financial system to set up a foreign exchange control system commensurate with the free trade zone so as to facilitate cross-border financing and promote the overall opening-up of financial service industry to private and foreign capital.

The Scheme points out that the Pilot Shanghai Free-Trade Zone is an experiment project to boost reform and upgrade open economy. Experience shall be gained that can be copied and popularized so as to set a positive example to bring along and serve the whole nation and finally boost joint development of various areas.

On the other hand, SCMP reveals some details of the free trade zone in its report today titled “Shanghai free-trade zone details revealed”, full text of which is given below:

China announced 18 new policy initiatives for its first free-trade zone in Shanghai, reducing restrictions on six key industries, including financial services and telecommunications.

The free-trade zone, to be officially launched on Sunday, is a major step to further liberate the world’s second largest economy. Chief Executive Leung Chun-ying on Friday called it an “irresistible trend”, but said it would not threaten Hong Kong’s position as an international financial centre.

The setting up of the free-trade zone is widely seen as one of the key reforms to be introduced under Xi Jinping’s leadership. But it remains uncertain how far the government is ready to go. Some of the boldest ideas – such as breaking the state monopoly over internet, data transmission and storage business – are still under discussion and may require special permission.

Premier Li Keqiang, the driving force behind the free-trade zone idea, is eager to see it as a testing ground for wider and deeper financial reforms. He earlier said the central government would copy the Shanghai model to the rest of the country if it proved to be successful. State media compared it to Deng Xiaoping’s creation of the Shenzhen Special Economic Zones some three decades ago.

Just like Deng, Li faced serious, at times open, resistance from entrenched interest groups.

Most of the new rules introduced on Friday have been reported earlier by the South China Morning Post, such as the further liberalisation of the foreign exchange regime in the special zone.

The Post on Wednesday also reported that Beijing is considering lifting a ban on internet access to Facebook, Twitter and news websites within the free-trade zone to attract foreign investors and professionals to the zone.

The idea seems to have run into resistance from the conservatives. The People’s Daily on Friday ran a commentary by a government researcher warning of the potential political risks such a move would entail. The article compared lifting the internet ban to the creation of “foreign settlements” in Shanghai under unequal treaties forced on China by imperial powers a century ago.

The article defended the need for internet controls and said “even if one day the free-trade zone does get rid of the [internet] firewall, it would be part of a synchronised effort by the country as a whole.”

“Undeniably, the importance of the firewall will gradually weaken until one day when it will be phrased out. But that will be the result of China’s growing overall strength and confidence, and … the balance of power between China and the US hegemony. It can not be forced.”

Among the key industries facing reduced restrictions is that of banking and financial services.

Beijing will allow foreign banks to skip long and often bureaucratic approving processes when setting up their wholly owned units in the free-trade zone.

It often took a few years for a foreign bank to first set up a symbolic representative office in China and then upgrade it to a full-service branch.

Peter Wong, chief executive of HSBC Asia Pacific said in a statement that the free-trade zone in Shanghai “will open a new phase in China’s financial reform process, bringing greater flexibility and fresh options to the heart of the world’s most dynamic economy.”

In August, Beijing gave final approval for Shanghai’s free-trade zone, which will span almost 29 square kilometres in the Pudong New Area of Shanghai, which includes the Waigaoqiao duty-free zone, Yangshan port and the international airport area. The Post reported the zone might eventually be expanded to cover the entire 1,210 square kilometre Pudong district if it proved to be a success.

Sources: SCMP “Shanghai free-trade zone details revealed”, CCTV “China (Shanghai) Pilot Free-Trade Zone Officially Launched” (translated from Chinese by Chan Kai Yee)

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