Shanghai’s long-awaited Free Trade Zone opens Sunday
China’s Big Bang or just the first of a bunch of loud pops? asks Asia Sentinel’s Steve Wang
On Sunday, China’s State Council is due to set in motion a long awaited pilot plan for the 28.78 sq km Shanghai Free Trade Zone, marking a major milestone for the country’s cautious, step-by-step economic liberalization that began 30 years ago.
It is a Big Bang that has Hong Kong officials looking nervously over their shoulders. Shanghai has been talked about as China’s financial capital since at least 1995, prior to the takeover of the former British crown colony by the Chinese government, when Fortune Magazine carried a cover story titled “The Death of Hong Kong.” The tycoon Li Ka-shing, Asia’s richest man, for instance, warned publicly recently that the impact of the Shanghai FTZ will be much bigger and come much more quickly than the territory anticipates.
Critics have said Hong Kong, still saddled with the colonial mentality that characterized the territory prior to 1997, will have trouble meeting a competition characterized by the ability to act fast and without the hobbles of an often-fractious Legislative Council and a chief executive’s office that has been steadily losing public support for a variety of reasons.
The territory’s main attributes, however, remain the enforceability of contract and the rule of law, both of which are absent in the mainland, and a communications and transport infrastructure that rank among the best in the world although parts of China are catching up fast.
Some of the details of the FTZ plan were released Friday to allow experiments within the zone, in Shanghai’s Pudong district, including easing restrictions on yuan, investment, trade and business management.
According to Xinhua, the state-owned news service, the opening permits reforms in six different fields including financial services including banking, health insurances and leases. Logistics are to include shipping and port management. Commercial enterprises include telecommunication and gaming services, professional services refer to a closer working with HK law enterprises, credit surveyors, travelling agencies, recruitment companies, investment managers and construction. Cultural and entertainment imply performer agencies and entertainment resorts. Social services mean education, vocational training and medical care.
“Under the preconditions that risk can be controlled, China will create conditions to test yuan convertibility under the capital account, market-set interest rates and cross-border use of the Chinese currency in the zone,” according to the plan. Regulations in the zone will also be eased in 18 sectors from finance, shipping, commerce to culture.
The zone is to be modeled on existing free trade businesses in the country’s economic hub – Waigaoqiao Free Trade Zone, Waigaoqiao Free Trade Logistics Park, Yangshan Free Trade Port Area and Pudong Airport Comprehensive Free Trade Zone, allowing domestic banks to provide services to depositors who are residents in other countries, according to Xinhua. It will also allow eligible foreign-funded financial institutions to set up banks and team up with qualified private banks to establish joint-ventures.