Shanghai free-trade zone

Free trade zone to boost investment from Europe, EC official says

The European Commission's Maarten Verwey says Shanghai experiment is both a challenge and an encouragement to bloc's companies

PUBLISHED : Saturday, 28 September, 2013, 12:00am
UPDATED : Saturday, 28 September, 2013, 3:20am

Shanghai's free-trade zone, to be launched tomorrow, will attract more European companies to invest on the mainland with the prospect of eased market access, a European Union official said.

"A challenge for European companies expanding into Asia market is the market access. Mainland China has not yet fully opened up its capital market for foreign firms. The free-trade zone experiment will help," said Maarten Verwey, deputy director-general at the Directorate General for Economic and Financial Affairs of the European Commission.

"Many European firms I have met have shown interest in this free-trade zone experiment. We are still waiting for the details. In principal, this will encourage trade and investment and will create business opportunities for European companies."

The free-trade zone in Shanghai will be the first of its type on the mainland, providing tax and other incentives to attract foreign companies to invest. The zone will also allow freer convertibility of the yuan for transfers in and out of the country.

In an exclusive interview with the South China Morning Post during a visit to Hong Kong, Verwey said the mainland became the EU's second-largest trading partner last year, with trade valued at €433.79 billion (HK$4.54 trillion), or 12.5 per cent of the trading bloc's overall trade. Only trade with the United States is higher, at €497.66 billion last year.

Trade between the EU and China took a hit when the global financial crisis arrived in 2008. In 2009, the EU's trade with China suffered a 9.2 per cent annual decline to €296 billion. In the years since, trade has risen for four consecutive years, resulting in a combined 46 per cent gain during the period.

Verwey said successive banking and economic reforms over the past four years had brightened the economic picture for Europe, and that the sovereign debt crises in Greece and Spain had been under control. As a result, many Chinese and Asian investors had turned their sights back on Europe, he said.

Hong Kong was the fourth-largest source of foreign direct investment in the EU in 2011 at €6.49 billion, followed by Japan with €5.39 billion. The mainland came in at seventh with €3.19 billion, with India next at €1.92 billion. The top three investors in Europe are the US with €114.76 billion, followed by Switzerland at €34.33 billion and Canada on €6.8 billion.

"The many banking and economic reforms have led all EU countries to have significantly improved deficits. These reforms have helped to enhance productivity and export volume," he said.

Verwey said more would be done in coming years to further improve the economic and banking sectors, such as the introduction of a single organisation for European banking supervision.

"Europe has been on the way of recovery but it is still fragile. The unemployment rate, which now stands at about 12 per cent, remains at a high level," he said.

"But we are positive on the outlook of the EU economy as we believe the many ongoing reforms in Europe will strengthen the banking sector, tackle unemployment and support economic growth in Europe."

He expected the EU to achieve 1.4 per cent gross domestic product growth next year, after an expected full-year fall of about 0.1 per cent this year, up from a decline of 0.2 per cent last year.