Foreign firms shun Shanghai zone
Lack of specific details for the initiative blamed for lukewarm response
The much-trumpeted mini-Hong Kong has turned out to be a damp squib as foreign businesses seem to give the Shanghai free-trade zone the cold shoulder for its lack of specifics.
Fewer than 3 per cent of the firms that had registered at the zone since its opening in late September were foreign-funded, the Shanghai government said.
This lack of interest for an initiative that was touted to become the mainland's new growth engine and aimed to give companies a free rein in a tightly regulated economy has left Shanghai officials red-faced.
"I wouldn't think the lukewarm response from multinational firms is a result of their disappointment," said Ai Baojun, a Shanghai vice-mayor who is also head of the zone's administrative committee. "They expect us to unveil the details soon."
After a lot of internal resistance, the central government had endorsed Shanghai's ambition of developing the Hong Kong-type territory in which officials had envisioned freer cross-border capital and commodity flows that would help the mainland further integrate with the global economy.
Beijing had pledged to make the yuan fully convertible in the zone but has yet to map out a detailed plan.
The ultimate goal is to attract global talent and funds to help the mainland strengthen its economic might while replicating the Shanghai free-trade-zone model in other parts of the country.
It is believed that Premier Li Keqiang has intended to use the zone as a testing ground for more radical reforms.
However, only 38 foreign firms have registered at the 28.78 square kilometre zone, with domestic firms accounting for most of the about 1,400 companies setting up shop there.
"Foreign companies want to find out what businesses they can do and why they need to be at the zone before making a move," said Dai Haibo, an executive deputy director of the zone's administrative committee. "It'll take time for foreign investors to understand the nature of the free-trade zone."
Sources with knowledge of the regulators' thinking said the top policymakers had second thoughts on concerns about hot money inflows as the yuan strengthened. As a result, no time frame was announced on the currency's full convertibility in the zone.
Last month, Hong Kong Monetary Authority chief executive Norman Chan Tak-lam, during a visit to Shanghai, urged mainland officials to give priority to the real economy and trade while drawing up policies governing the free-trade zone.
Hong Kong businesses and financial institutions have yet to show a lot of interest in the zone. Dai said Hong Kong investors, the largest overseas investment source for Shanghai, were most welcome to join in and profit from the development of the zone.
Although the free-trade zone has yet to generate real economic output, property prices in the city have surged in the past months as local investors have flocked to buy houses and office space, betting on a price surge induced by the zone.