Mr. Shangkong

The deafening silence of Shanghai's free-trade zone

Few major announcements in the zone's first 100 days is not a good sign, prompting worries about its fate if it does not get off the ground soon

PUBLISHED : Monday, 13 January, 2014, 1:00am
UPDATED : Monday, 13 January, 2014, 8:45am

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What word do you think will best describe Shanghai's progress this year on its ambitious new free-trade zone? For Gordon Orr, that word is "quiet".

As the Shanghai government was busy with celebrations for the first 100 days of the zone, McKinsey published its influential annual report on what could happen in China in 2014. The author of the widely-read report is Shanghai-based Gordon Orr, the Asia chairman of the global management consultancy.

The city's free-trade zone featured among the top 10 mentions of what people should expect, or indeed not expect too much of, about upcoming events and reforms in China. The zone was launched in October with the strong personal support of Premier Li Keqiang, who sought to model it on Hong Kong's free port system. Indeed, it would be a showcase of long-term efforts by Li, who had taken office early last year, to restructure the world's No2 economy.

Analysts wonder how free the free-trade zone could be with such a long ‘negative list’

Now the clock is ticking, with the first 100 days behind us. If things continue to be quiet for the next 100 days or even 200 days, perhaps by this time next year nobody will even bother to write a column or analysis about the free-trade zone. In a fast-changing world, you must impress people or you will be easily forgotten by the rest of the world.

"For the FTZ, the only change so far appears to be that companies allowed to invest in it will not have to go through an approval process. As for the negative list, while there's a possibility that Shanghai will ease the limitations, for the moment the list very much matches the categories for restricted and prohibited projects in the government's fifth Catalogue of Industries for Guiding Foreign Investment," said Orr in the part of his report about Shanghai, titled "The Shanghai Free Trade Zone will be fairly quiet".

The so-called negative list here means a long list of restricted and prohibited projects and sectors for international investors, giving some analysts a laugh about how free the free-trade zone could be with such a long "negative list". The list includes a few things that Beijing said would threaten national security, so foreign investors can just forget about them.

"This ambiguous situation gives the authorities, as usual, full freedom to maintain the status quo or to pursue bolder liberalisation in the FTZ in 2014 if they see a need for a stimulus of some kind. On balance, I'd say this is relatively unlikely to happen," Orr added.

Status quo? Indeed. I must say that Orr is one of few true experts who do understand the art of politics between the local and central government levels. If you ask me to find a translation for "status quo" in Chinese, I will say it just means shao zuo shao cuo, bu zuo bu cuo - i.e. the less you do, the smaller chance for you to make any mistake. And if you do nothing, then you will never make a mistake.

But for Shanghai, this is really a time to do something rather than stick to the "status quo" pending Beijing's orders. By the time Beijing cleans up its own internal political trouble, it may be too late for Shanghai to remind the world that, once upon a time, it had something called a free-trade zone.

George Chen is the Post's financial services editor. Mr. Shangkong appears every Monday in the print version of the SCMP. Like it? Visit