Leaders bypass ministries on Shanghai free-trade zone

The city government has been given vetting powers by a State Council that is desperate to push ahead with reforms despite plenty of resistance

PUBLISHED : Saturday, 28 September, 2013, 12:00am
UPDATED : Saturday, 28 September, 2013, 2:20am

After two months of suspense, the wish list for Shanghai's new free-trade zone was finally released yesterday.

What you should read, however, is not the long list of things to be liberalised but a paragraph in the State Council announcement that stipulates a policy-making and policy-implementation system rarely seen on the mainland.

It said: "The State Council will lead and co-ordinate the building of the [zone]. The Shanghai municipal government will organise and refine the implementation with great care.

"All relevant departments should be supportive and do their best in the co-ordination and evaluation … to make the building and management of the [zone] a success.

"Should the Shanghai municipal government encounter any major problem, it should be promptly reported to the State Council."

That deviates significantly from the mainland's three-tiered system of policy administration - the State Council, the ministries and the local authorities. The powerful ministries have been reduced to a supporting role.

Go ahead with the mature reform and improve it gradually

This tells us just how desperate the leadership is about pushing for reform, highlights the strength of resistance that the ministries have put up against the zone, and foreshadows the difficulties the Shanghai municipal government will encounter in making the zone a success.

Frustrated by 10 years of stagnation in economic reform, the leadership is hoping that the zone - a field trial for major policy changes - will open up cracks in the stone wall, building on some key successes achieved by their predecessors.

There was the establishment of the Shenzhen special economic zone in the '80s, marking the start of the mainland's market liberalisation, and the mainland's entry into the World Trade Organisation in 2001, which gave a push to trade liberalisation and corporate reform.

As in those two controversial reforms, the idea of a free-trade zone was strongly opposed by related ministries and got through only after some banging of tables by Premier Li Keqiang. Only the Ministry of Commerce has spoken out in support of the zone so far.

Instead of ironing out the differences and bringing everyone on board, the leaders have decided to "go solo", putting the ministries on the sideline and transferring some of their vetting powers to Shanghai.

That is bold. Mind you, despite strong defiance from interest groups, the mainland's WTO entry was the work of a central-level committee comprising various ministers under the leadership of a deputy premier.

The key issue here is that it is beyond imagination how the free-trade zone is going to work without the expertise and support of the ministries.

Struck in the middle is Shanghai, which will have to handle the not insignificant task of implementation. Just how well the city will be able to manoeuvre and deliver is doubtful, going by recent speeches by its leaders.

Shanghai bureaucrats are not known for innovation. "The core task of the [zone] is system innovation. The reform is difficult," Shanghai's Communist Party secretary Han Zheng told the city's leadership. "We have to give up the practice that we are used to. We have to actively try out things that we are not familiar with and come with risk."

Shanghai bureaucrats are also notorious for the way they protect their turf. "Shanghai should not be tied down by departmental or regional interests," the city's deputy party secretary and mayor, Yang Xiong, said. "We have to be united and work for it."

(The city's growth did not tail other provinces for five successive years for no reason.)

Being used to direct access to the very top for decades, the city does not have impressive guanxi (connections) at the ministerial level.

"Every department should actively lobby for the support of the ministries in making this reform a success," Yang said.

The job is tough. No wonder, the first line of the announcement reads: "The building of the [zone] is an important decision made by the Party Central and the State Council".

To the ministries, that means "you may ignore the State Council but don't you dare ignore the party".

The announcement also said: "Go ahead with the mature reform and improve it gradually."

To the Shanghai authorities, that translates into the comforting thought that it "is okay to make mistakes".

Of course, there is the last resort of running to daddy if the big brothers push you around. The problem, however, is that daddy is not there all the time, and the unhappy big brothers know many tricks that can trip the little one over.

It is therefore not surprising that the Shanghai leadership has adopted a cautious tone on the free-trade zone.

"It is about a series of non-stop reforms. It is about accumulating small victories into a big victory," Han said.