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  • Jul 11, 2014
  • Updated: 8:12am
Mr. Shangkong
PUBLISHED : Monday, 09 December, 2013, 4:50am
UPDATED : Monday, 09 December, 2013, 8:15am

Shanghai's lofty goals a flight of fancy if key issues not fixed

Free-trade zone has a nice ring to it, but ambitions can only take off when residents are free from cares over bad air, suspect food and web curbs


George Chen is the financial editor and columnist at the South China Morning Post. George has covered China's financial industry and economic reforms since 2002. George is the author of Foreign Banks in China. He muses about the interplay between Shanghai and Hong Kong in Mr. Shangkong columns every Monday in print and online. Follow George on Twitter: @george_chen

In a place where access to the internet is restricted, international flights fail to land freely, and, most importantly, local residents cannot even breathe freely, the government is building something new called a "free-trade zone" as part of Beijing's ambition to open up the economy wider and faster to lure foreign money.

Welcome to Shanghai!

I was born in Shanghai, and like my hometown fellows, I have always been proud of being a native of Shanghai, known as the "Paris of the East" between the 1920s and 1930s. When I was writing the column this week, you can imagine I naturally had mixed feelings about many things happening in Shanghai.

In my old and happy days in Shanghai - although not as wealthy or shining as the city looks nowadays - I often went to buy the Shanghai-style egg pies or pan-fried buns at the street stalls after school. Today, Shanghai parents will tell their children not to eat "at random" because you just don't know what the meat comes from (or whether it is really meat or something else you may not want to know about).

Even the eggs could be fake.

Before I moved to Hong Kong, I could still access Facebook freely in Shanghai. I remember I found how useful Facebook could be for me to stay connected with my friends globally after I went from an Asia Society forum in Tokyo where I was recognised as one of its young leaders and met many peers from the rest of the world.

Talking of travel, I guess no travellers like to see their flights delayed or cancelled. Last week, many travellers heading for Pudong International Airport, one of the world's busiest, were told they could not land there and must be diverted to nearby airports.

Blame the smog, the city's No1 challenge in the past week that significantly clouded the global image of Shanghai.

"Isn't it just ridiculous? A city that claims to be building a world-class free-trade zone fails to get international flights to fly in freely?" said a passenger who was on a Virgin Atlantic flight from London on Thursday morning.

The flight was forced to divert to Xiamen where the plane refuelled before another attempt to fly to Shanghai once the Pudong airport gave the clearance that the air quality had improved sufficiently for take-offs and landings.

On Friday, the Air Quality Index of Shanghai exceeded 400 in the morning to reach the "severe" category, the highest in a six-tier national rating system, according to the Shanghai Environmental Monitoring Centre. Masks and air purifiers were quickly sold out and residents advised to try to stay indoors.

China is already the world's No 2 economy, something Beijing has been very proud of. But if you ask local Shanghai people to compare their quality of life now with what it was like 20 or 30 years ago, or just ask them a simple question - are you happy with what Shanghai is like today? - I think the answers will be very mixed.

As a concerned citizen, I decided to write this column to raise awareness of the serious problems that Shanghai is facing. Sometimes, it is not just about GDP. It is just about the way you choose to live comfortably.

george.chen@scmp.com, @george_chen


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


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This article is now closed to comments

There will be three likely scenarios:
(i) The second line will be fully guarded so that the Shanghai FTZ will become a mini-Hong Kong, which also means we’ll have a little brother.
(ii) The second line cannot be guarded and hence capital would move freely to the rest of China, with who-know-what consequences.
(iii) A gray boundary is set up between the FTZ and the rest of China, creating opportunities for making fortunes through various kinds of arbitrage and official and private rent-seeking behaviour.
In case (i), the importance of Hong Kong still can’t be fully replaced.
In case (ii), China’s political vested interests may hinder ‘too-deep’ economic reforms from taking place.
I think scenario (iii) is the most likely outcome. What do you think?
Perhaps China needs bright monetary policy leaders much more than Hong Kong needs democratically elected Chief Executive and Legislative Council.
After all, considering our traditionally conservative fiscal policies and the dominance of the present linked exchange rate mechanism, Hong Kong is essentially on automatic pilot.
I forget which article it is, but a certain smart writer of the morning post commented months ago that the main problem with Shanghai's free-trade zone is that, her successful enacted policies will be copied by other parts of China.
People’s Bank of China Deputy Governor Yi Gang said the following in a recent interview:
"Is creating a completely free-floating exchange rate a gradual process? Might the goal be reached first in the Shanghai Free Trade Zone (FTZ)?
Many people think so. I think this assumption is flawed theoretically because China is but one market. If the Shanghai FTZ's policy is to open the front line and guard the second line, the assumption may work. But it would make the FTZ an offshore market with no direct connection to the mainland market. This deprives it of meaning, since we already have Hong Kong as an offshore market.
If we cannot guard the second line, we cannot make the assumption work in the FTZ, because capital would move freely across the FTZ and the rest of the mainland. That means the whole country's market is free.
This is where it gets difficult."
For the whole interview, please visit ****english.caixin.com/2013-12-04/100613375.html.
I think the answer to this question worths a lot of money indeed.


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