Hong Kong faces new competition as Shanghai plans free trade zone

Shanghai will start building a free-trade zone this year in a major step towards its long-term ambition of becoming a leading international trading hub.

The first step will be to upgrade and expand the city's bonded areas, where goods can be imported, processed and re-exported without the intervention of customs authorities.

It would be the first such free-trade zone in China if approved by the central government, Xinhua said. The announcement was made yesterday by Shanghai's acting mayor, Yang Xiong , in the government report delivered at the municipality's People's Congress.

"In 2013 … we will build the pilot case of the free-trade zone in accordance with the state's planning," Yang said, adding that the municipality would push forward reforms including foreign-denominated offshore bank accounts and financial leases.

The metropolis wants to attract 150 more multinationals to set up their regional headquarters over the next five years.

Xinhua yesterday quoted Wan Zengwei, director of the Pudong Academy of Reform and Development in Shanghai, as saying the project would take about three years to complete.

The mayor's report did not give further details on the zone, which analysts said could become a competitor to Hong Kong if it were big enough and competitive tax polices were approved by the central government.

Xinhua yesterday said the new zone would require better financial services such as cross-border financing businesses and international trade settlement.

Christopher Cheung Wah-fung, legislator for the financial services sector, said Shanghai would be more of a threat to Hong Kong than the Qianhai development zone in Shenzhen as Hong Kong businesses could take part in the latter as it was just across the border.

"The business sector of Hong Kong will need to strengthen and improve itself to prepare for the opening up of Shanghai to international investors," he said.

Yang supported a free-trade zone when he headed the Shanghai Free Trade Zones Administration, which oversees the Shanghai Yangshan bonded port area, the Shanghai Waigaoqiao bonded area and the Shanghai Pudong Airport bonded area - all in the eastern part of Pudong. The trade volume of the three areas totalled US$100 billion last year, Xinhua said.

Yang was quoted by the Oriental Morning Post as saying at a meeting of the administration in 2011: "The Shanghai Free Trade Zones Administration should … actively explore a way of upgrading the bonded areas to form a free-trade zone which follows international standards."

The plan, if successful, would help Shanghai to rank higher among international metropolises, Xu Mingqi , a researcher at the Shanghai Academy of Social Sciences, said.

Yang said Shanghai's GDP growth target was 7.5 per cent, the same as last year.