The new zone is being seen as the most important attempt at reform since Communist leader Deng Xiaoping, the architect of China's transformation to a market economy, designated Shenzhen on the border with Hong Kong a special economic zone in 1980.
"The establishment of the Shanghai free-trade zone is a significant move for China to conform to new trends in the global economy and trade," Mr Gao said.
The new zone "shows that the new government is keen on making reforms", said Stefan Sack of the European Chamber of Commerce in China but he added that "a free-trade zone in Shanghai alone will not change how business is done in China".
The goals are to upgrade financial services, promote trade and improve governance as well as measures to encourage foreign investment in 18 sectors in the co
Показать всеuntry's tightly regulated service industry. There are also plans to experiment with the convertibility of China's tightly controlled currency, the yuan, and let market forces rather than regulators set interest rates.
The FTZ will further liberalize multiple sectors including investment, services, trade, and financial services, which will have a profound impact on China’s economy.
The FTZ will challenge China’s current system of administrative permits and approvals, as it introduces the concept in economic management that absence of legal prohibition means freedom.
The FTZ aims to build a new institutional system capable of being integrated with the international system. The system developed in the FTZ will serve as a model for the rest of China.
The FTZ aims to provide world-class transport, communications, management and treasury facilities for domestic and foreign enterprises who consider Shanghai to be a major hub of their supply chains and investment management across Asia. These developments will upgrade Shanghai’s core competitiveness and fortify its position as a global trading, logistics, investment and treasury center. Скрыть
Shanghai Free-trade Zone is the first Hong Kong-like free trade area in mainland China. The plan was first announced by the government in July and it was personally endorsed by Premier Li Keqiang who said he wanted to make the zone a snapshot of how China can upgrade its economic structure. Other mainland cities and provinces including Tianjin and Guangdong have also lobbied Beijing for such approvals. The Shanghai FTZ will first span 28.78 square kilometres in the city's Pudong New Area, including the Waigaoqiao duty-free zone and Yangshan port and it is believed it may eventually expand to cover the entire Pudong district which covers 1,210.4 sq km of land.
The goals are to upgrade financial services, promote trade and improve governance as well as measures to encourage foreign investme
Показать всеnt in 18 sectors in the country's tightly regulated service industry.
Even before it officially opened on September 29, Shanghai's Free Trade Zone (FTZ) has been the subject of endless speculation. Another step forward from the Special Economic Zones established in the past and slated to be the first of its kind in China, it was dogged by rumors of unfettered internet access and currency exchange while officials remained tight-lipped on any developments. Now two and a half months in, many details still remain unclear. Скрыть
1. The development of Shanghai Free-trade Zone 4
2. The meaning of Shanghai Zone 9
3. Аnalysis and prospects of Free-trade Zone 16
1. China opens Shanghai free-trade zone. The Guardian. Sunday 29 September 2013 // http://www.theguardian.com/world/2013/sep/29/china-shanghai-free-trade-zone.
2. Davis, Bob and Silk, Richard. China to Test Looser Grip on Economy. New Free-Trade Zone in Shanghai Opens. The Wall Street Journal // http://online.wsj.com/news/articles/SB10001424052702304795804579100640245613408.
3. Free-trade zone renews hopes for foreign board. Friday, 11 October, 2013 // http://www.scmp.com/business/money/markets-investing/article/1329000/free-trade-zone-renews-hopes-foreign-board.
4. Han Zheng: How Shanghai's Free Trade Zone Works // http://english.caixin.com/2013-11-14/100604877.html.
5. Holliday, Katie. Why Shanghai free trade zone is no match for Hong Kong. Monday, 30 Sep 2013 // http://www.cnbc.com/id/1
6. Jeanny Yu. Proposals announced to boost Shanghai Free Trade Zone. Monday, 02 December, 2013 // http://www.scmp.com/business/economy/article/1371388/proposals-announced-boost-shanghai-free-trade-zone.
7. Overview of the China (Shanghai) Pilot Free Trade Zone // http://www.mallesons.com/Documents/Shanghai_FTZ_Overview.pdf.
8. Patch, James. Shanghai Opens Free Trade Zone; Internet Restrictions Remain. The Diplomat. September 29, 2013 // http://thediplomat.com/2013/09/shanghai-opens-free-trade-zone-internet-restrictions-remain.
9. Roberts, Dexter. Shanghai's New Free-Trade Zone: Reform Breakthrough or Hype? September 20, 2013 // http://www.businessweek.com/articles/2013-09-20/shanghais-new-ftz-trade-reform-breakthrough-or-hype.
10. Schuman, Michael. Shanghai Has a Free-Trade Zone, so Now What? // http://business.time.com/2013/09/30/shanghai-has-a-free-trade-zone-so-now-what/#ixzz2nqME3LD2.
11. Shanghai Free Trade Zone: The next Shenzhen? // http://www.economist.com/news/china/21587237-new-enterprise-zone-could-spark-wider-market-reformsbut-only-if-bureaucrats-ease-their-grip.
12. Shanghai Free-Trade Zone Plans Spark Surge in Residential Prices. Emerging Markets News // http://www.bloomberg.com/news/2013-09-25/shanghai-free-trade-zone-plans-spark-surge-in-residential-prices.html.
13. Shanghai Free-Trade Zone struggles through birth. Saturday, 09 November, 2013 // http://www.scmp.com/comment/insight-opinion/article/1351259/shanghai-free-trade-zone-struggles-through-birth.
14. Shanghai FTZ: China’s Globalization 2.0. Zhang Monan, researcher, China Int'l Economic Exchanges Center. September 27, 2013 // http://www.chinausfocus.com/finance-economy/shanghai-ftz-chinas-globalization-2-0.
15. Shanghai research on FTZ details. China.org.cn, October 15, 2013 // http://www.china.org.cn/business/2013-10/15/content_30300107.htm.
16. Shanghai wants to expand container port. 2 December, 2013 // http://www.scmp.com/business/economy/article/1370442/shanghai-wants-expand-container-port.
17. Shanghai's Free Trade Zone // http://www.cityweekend.com.cn/suzhou/articles/blogs-suzhou/business/shanghais-free-trade-zone1.
18. Sudworth, John. Shanghai's free trade zone raises hopes. BBC News, Shanghai. 26 September 2013.
19. Welcome to Investing in Shanghai Free Trade Zones... // http://ftz-shanghai.com.
20. Xie, Frank. Will Shanghai Free Trade Zone Succeed? Epoch Times. October 19, 2013. Скрыть
Such concerns were hardly allayed when the authorities released a “negative list” of sectors in which foreigners cannot invest in the zone. In theory, a short list – banning guns, drugs and pornography perhaps – would be investor-friendly. In fact, the SFTZ’s negative list contains over 1,000 banned areas. Local officials insist it will be pared down, but one foreign lawyer grumbles that Chinese officials are simply “addicted to control.” Given these uncertainties, it is reasonable to ask whether the ballyhooed SFTZ can really become the next Shenzhen. The surprising answer from many experts is a cautious maybe.1
“Do not be fooled by the early caution,” says Chen Bo of the Shanghai University of Finance and Economics, who has advised the government on the SFTZ. “We remain very ambitiou
Показать всеs.” Mr Chen believes internal and external factors are forcing a change in China’s economic model.
At home, soaring wages and an ageing workforce are pushing China towards the “middle-income trap”. Abroad, rivals are rushing into regional free-trade deals, such as the Trans-Pacific Partnership, that will pry economies open. “China is feeling pressure to up its competitive game,” says Kenneth Jarrett, head of the American Chamber of Commerce in Shanghai.
To keep up, argue many analysts, China must liberalise. As manufacturing is already competitive, that means opening up the inefficient, cosseted services sector – especially finance. This is where the SFTZ comes in. Services have risen from just half of Shanghai’s GDP in 2003 to 62% this year (in Hong Kong, they make up 90%).
By letting experienced local officials experiment with deeper reforms in services inside a tightly sealed zone, cautious types hope risks –for example, arising from yuan convertibility – can be contained. Louis Kuijs of RBS, an investment bank, argues that, when it comes to controlling hot money, the pilot works “only if there is a very tight border between the zone and the rest of China”. On this view, only those reforms that work well in the zone will be rolled out, carefully and slowly, elsewhere.
Nonsense, say those hoping for leakage. They argue that the whole point of the zone is to spark broader liberalisation that has been stalled for a decade. May Yan of Barclays investment bank says that, if liberalisation inside the zone is not allowed to affect the rest of the economy, “the SFTZ will be merely like Qianhai [a special zone near Hong Kong], where there is not much happening”. Such critics want to see reforms move quickly from the SFTZ to other zones and the rest of China.
Many observers, however, seem willing to give the pilot zone time to blossom. Perhaps this is because they think the zone is irreversibly linked to plans for national economic liberalisation. After all, though widely known as the SFTZ, the zone’s legal name is the China (Shanghai) Pilot Free Trade Zone. Some liken Mr Li’s support for the SFTZ to his predecessors’ push for entry into the WTO in 2001, a symbol of modernisation that galvanised political support for economic reform.
And despite the lack of details, the SFTZ guidelines promise to liberalise some important sectors. Officials have outlined six areas where industries will be opened during the next three years (see table).
Some three dozen firms have been given permission to enter. That is meant to be an early show of confidence (though sceptics ask how they applied, since the rules have not been made public). Most are domestic ones, but Citibank, an American banking giant, is among them. Andrew Au, its China boss, accepts his firm has “no information” about how the zone will regulate banks, but says it is going in because “directionally it is the right place for the country to go”. He notes that the Shenzhen reforms also did not offer many details at the start.1
Citibank plans to open a sub-branch in the zone to handle trade financing and cash management for clients (“Our telephones are ringing off their hooks,” claims Mr Au). But he thinks even bigger opportunities will come when yuan convertibility and interest-rate liberalization – the two biggest reforms promised – come in.
Simon Pearson, a China-based business analyst, believes another opportunity lies in simplifying and speeding up imports. It now takes up to a month for goods to clear customs, so retailers hold plenty of “safety stocks”. As it is costly to re-export, that stock is then stuck. If the SFTZ cuts red tape, he thinks not only that firms could save money through lower stocks but also that Shanghai might compete with Hong Kong and Singapore to be a regional fulfilment hub for Asian retail markets.
The biggest advance the SFTZ could bring, argues Mr Jarrett, is “predictability of regulation”. He observes that the implementation of rules in China varies across time and geography, creating tremendous uncertainty. Echoing other observers, he hopes that the management committee now being put together for the SFTZ will help co-ordinate the actions of regulatory bodies so that the new pilot is administered in a transparent and predictable fashion. Doing this means squabbling bureaucrats and regulators ending their addiction to control. China’s next stage of development may depend on it.1
The Shanghai zone has been touted as the most important attempt at economic reform since the establishment of the country's first special economic zone in 1980 in Shenzhen, near Hong Kong.
That zone allowed in foreign investment aimed at harnessing cheap labour to build a manufacturing industry that became a driving force in helping China eventually become the world's second-biggest economy.
The government has pledged to open up 18 service industry sectors to foreign investment, including shipping, law and engineering. Foreign-owned performing arts agencies and medical institutions will be allowed.2
The sale of video game consoles, which is banned in China, will also be allowed, pending approval from authorities of individual games and systems.
Another initiative will permit foreigners to set up joint-venture talent management agencies with local partners.
The rules say the opening-up measures will be applicable to companies that are registered in the zone.
Foreign companies will also be allowed to provide some internet services, though the official Xinhua news agency reported before the launch that internet restrictions would not be lifted, following a report by a Hong Kong newspaper that banned websites such as Facebook would be unblocked inside the zone.
Dai Haibo, deputy secretary general of Shanghai's government and vice-director of the zone's management committee, said it would take three years to determine whether the zone's rules and system were effective.1
After three years, the country will build on the experience gleaned from the Shanghai free-trade zone and there may be further reform goals, he told a news conference following the official opening ceremony.
Wei Yao, a China economist at Société Générale, said in a research note that setting up the zone in Shanghai, a city of "great strategic importance", was a clear sign that policymakers wanted to push for fast economic liberalisation.
"The framework that is shaping up looks rather promising, although details of most measures are to be put in place over the course of six months to a year," she wrote. "Like all previous economic experiments, this project is going to be a work in progress, subject to constant refinement."
China's state council announced rules for the zone. They outline goals to upgrade financial services, promote trade and improve governance as well as measures to encourage foreign investment in 18 sectors in the country's tightly regulated service industry.
There are also plans to experiment with the convertibility of China's tightly controlled currency, the yuan, and let market forces rather than regulators set interest rates. The zone is expected to serve as a testing ground for such financial experiments before they are rolled out elsewhere in China. No timeline was given for any changes, but rules in the zone will be introduced over a three-year period.2
3. Аnalysis and prospects of Free-trade Zone
The FTZ involves reforms in investment, commerce, finance, and administrative law, according to media reports.
For the past three decades, China’s economic reforms have followed former leader Deng Xiaoping’s slogan “cross the river by feeling the stones,” using a step-by-step approach to make gradual progress. This pilot zone in Shanghai should be dubbed, “going to the sea by feeling the stones.”
Whether or not the Chinese yuan will succeed in the Shanghai FTZ will largely depend on how far the top leaders in Beijing dare to go.
Some analysts have suggested that the US-led Trans-Pacific Partnership (TPP) agreement was the motive behind Premier Li Keqiang’s cabinet endorsing the FTZ.
“The free trade zone will play a pivotal role in China’s negotiations for joining the Trans-Pacific Partnership Agreement. The zone can be expected to serve as China’s first window opening to the outside world after joining the TPP,” said Qi Xiaozhai, director of the Shanghai Commercial Economic Research Center.
Since Chinese authorities are concerned about possibly joining the TPP, the United States may not buy into the pilot zone – it is not designed for the whole country’s system yet.
If the authorities had made such a decision in the early 1980s, at the beginning of Deng Xiaoping’s economic reforms, the United States might have listened then. Today, as more truth behind China’s rapid economic growth, excessive social imbalances, and rampant political corruption has been uncovered, the United States and other TPP partner countries are not so willing to play ball with China.1
With a population of some 23 million people and an estimated gross domestic product (GDP) of US$500 billion, Shanghai ranks among the top 30 economies in the world by GDP. Could Shanghai alone, an economic entity with capital-account liberalization, join the TPP? Truly accomplishing this would require completely segregating the Shanghai FTZ from the rest of China.
Skeptical economists point out that the Chinese leadership initiated the notion of convertibility in its capital accounts in 1993, but since then they have failed to follow through. The previous failure suggests that this pilot zone is being used to give the appearance of financial reform, but is really devoid of substance, according to Reuters.
By claiming that the Shanghai FTZ is a pioneer on the mainland of wider yuan convertibility and market-oriented exchange and interest rates, the Communist regime affirmed that its currency liberalization in the zone would create a more favorable economic climate for the country and the outside world.
In 2011, the first year of China’s 12th five-year economic plan (2011-2015), the authorities promised that the yuan would achieve “full convertibility” under the capital account by 2015 without setting any milestones to achieve this goal. More than two and a half years have passed, but the yuan convertibility is far behind schedule.
At this point, the reforms within the FTZ are just a test bed, but the chance for its expansion throughout the rest of the country is remote. Even if it can be done in the zone within a year, it will take at least a few more years to be replicated and popularized in other cities or regions. It’s very unlikely that the yuan convertibility plan will expand nationwide during the 12th economic plan.
A country unable to deliver on its promises is scarcely creditworthy whatever its form of state government.
Regardless of the intentions of Li Keqiang’s cabinet, the free exchange of the Chinese yuan will likely only help to facilitate hot money flows. Corrupt officials will be able to transfer assets legitimately; further exacerbating China’s ongoing hot money problems. Hot money is already moving almost unhindered into and out of the country through underground channels.
“It’s difficult to segregate the Shanghai FTZ from the rest of China. There will be money flows underground. It can be said that the FTZ experiment opens a hole in China’s capital account wall,” said Wang Tao, chief China economist at UBS, as reported by the communist regime’s mouthpiece Xinhua.
Many analysts warn that firms and governmental officials in the FTZ could abuse their privileges in order to profit from dealings with firms outside the zone in China, threatening the country’s economic growth and harming the welfare of Chinese households.
What does free yuan convertibility in the Shanghai FTZ really imply? The full realization of it will trigger a wave of more corruption and rent seeking by Chinese officials, leading to huge influxes of the yuan into the zone and large outflows of foreign currency out of China.
As this trend continues to grow, the Beijing authorities have only two ways to go: either put an end to this economic test ground by admitting their failure in “going into the sea by feeling the stones,” or split Shanghai from the country, making it become financially independent like Hong Kong.
For sure, the first outcome will bring shame and disgrace to the Chinese Communist Party (CCP) and the second may invite other provinces or cities to seek economic or even political independence, unequivocally resulting in the complete collapse of the CCP.1
To look at it you wouldn't think the future of the world's second largest economy depended on it.
The 10-sq-km block in the eastern suburbs of Shanghai currently contains a few bonded warehouses, some factories and the odd patch of open scrubland.
But the brand new sign, with the words "Shanghai Pilot Free Trade Zone" written on a yellow and red steel archway over the access highway, is causing quite a stir nonetheless.
The plan, which has some powerful backers including China's Prime Minister, Li Keqiang, is being seen as deeply significant – a sign that the country's leadership is preparing to test out important, and long awaited, economic reforms.
Some are already drawing parallels with China's great architect of economic transformation, Deng Xiaoping.
"There is a lot of resistance towards reform, especially in the financial sector," Xu Bin, professor of economics and finance at the China Europe International Business School (CEIBS), tells me.
"So Li Keqiang is learning from Deng Xiaoping. He wants to start from a small area as a breakthrough, so he picked Shanghai. Symbolically speaking, it is very, very significant."
Free trade zones are not new to China. In fact, the bonded warehouses and the factories mentioned are already part of the existing Waigaoqiao Free Trade Zone which offers customs benefits to manufacturers and traders.
But it is the backing of China's State Council, the country's cabinet, with the recent suspension of certain laws relating to foreign investors that signals something different is about to take shape in Shanghai.
In fact, four existing bonded zones – Waigaoqiao Free Trade Zone, Waigaoqiao Free Trade Logistics Park, Yangshan Free Trade Port Area and Pudong Airport Free Trade Zone – will all find themselves inside the new pilot zone.
Haibin Zhu, chief China economist at JPMorgan, also believes that the new combined, 28-sq-km area will be about so much more than just tax breaks for imports and exports. "The free trade zone is about a more high level openness and reform," he says. "So it includes at least four areas. One is the traditional trade openness, but also on top of that there is investment reform, administrative reform and financial reform. "The core part," he adds, "is how to redefine the relationship between the government and the markets." Скрыть
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