Shanghai free-trade zone

Shanghai free-trade zone may be extended to cover Pudong

Central government plans to first focus on specific areas for the scheme amid concern about financial industry risks and hot money inflows

PUBLISHED : Thursday, 05 September, 2013, 12:00am
UPDATED : Thursday, 05 September, 2013, 11:18am

The central government may eventually expand its proposed Hong Kong-like free-trade zone in Shanghai to cover the entire Pudong district, government sources say.

Late last month, Beijing approved the mainland's first such zone, which will span 28.78 square kilometres in the Pudong New Area, including the Waigaoqiao duty-free zone and Yangshan port.

The entire Pudong district covers 1,210.4 sq km.

Government sources familiar with the plan told the South China Morning Post that the government initially considered declaring that the new free-trade zone would take in all of Pudong.

"Officials and scholars discussed the possibility of making the entire Pudong New Area a new free-trade zone," said one of the sources, referring to the official name of the district.

They later agreed to focus on smaller areas within the district as they wanted to make sure that the launch would be smooth and successful, said the source, who declined to be named because of political sensitivities.

The Post exclusively reported on Tuesday that the Shanghai free-trade zone would be launched on September 27, when senior central government officials will visit the city for a ceremony to mark the occasion.

It is understood that Premier Li Keqiang personally endorsed the plan to launch the zone in Shanghai, rather than in Tianjin or Guangdong, which had also lobbied for the central government's approval.

"The reason why the top leaders agreed to launch the free-trade zone first in specific parts of Pudong was mainly because of financial industry risks related to offshore banking and concerns about hot money inflows," a government source said.

The Post reported in July that Beijing would allow foreign banks to set up wholly owned units in the zone, mainland banks could offer offshore banking business and foreign commodities exchanges and trading companies could own their warehouses there.

"You need to make sure if those risks happen, you can get them under control. From that perspective, Pudong is way too big and it would be far more difficult to control such potential risks than to deal with just several specific parts of Pudong district," the source said. "But it's always a good option to expand further to cover all of Pudong if the free-trade zone can be worked smoothly in its early stages."

In early 1990, the central government announced the Pudong New Area - covering the eastern side of Shanghai's main Huangpu River - as its newest special economic zone following the success of the Shenzhen zone. The decision to launch Pudong New Area was partly motivated by Beijing's need to overcome difficulties in attracting foreign investment after the Tiananmen incident in 1989.

The Pudong New Area won direct support from Deng Xiaoping, then the top leader on the mainland, who later said he should have launched economic reforms in Shanghai even earlier.

Nowadays, Pudong is regarded as China's Wall Street, where many Fortune 500 companies and international banks have their regional headquarters.