Shanghai free-trade zone policy initiatives announced ahead of launch
China announced 18 new policy initiatives for its first free-trade zone in Shanghai, reducing restrictions on six key industries, including financial services and telecommunications.
The free-trade zone, to be officially launched on Sunday, is a major step to further liberate the world’s second largest economy. Chief Executive Leung Chun-ying on Friday called it an “irresistible trend”, but said it would not threaten Hong Kong’s position as an international financial centre.
The setting up of the free-trade zone is widely seen as one of the key reforms to be introduced under Xi Jinping’s leadership. But it remains uncertain how far the government is ready to go. Some of the boldest ideas – such as breaking the state monopoly over internet, data transmission and storage business - are still under discussion and may require special permission.
Premier Li Keqiang, the driving force behind the free-trade zone idea, is eager to see it as a testing ground for wider and deeper financial reforms. He earlier said the central government would copy the Shanghai model to the rest of the country if it proved to be successful. State media compared it to Deng Xiaoping’s creation of the Shenzhen Special Economic Zones some three decades ago.
Just like Deng, Li faced serious, at times open, resistance from entrenched interest groups.
Most of the new rules introduced on Friday have been reported earlier by the South China Morning Post, such as the further liberalisation of the foreign exchange regime in the special zone.
The Post on Wednesday also reported that Beijing is considering lifting a ban on internet access to Facebook, Twitter and news websites within the free-trade zone to attract foreign investors and professionals to the zone.
The idea seems to have run into resistance from the conservatives. The People’s Daily on Friday ran a commentary by a government researcher warning of the potential political risks such a move would entail. The article compared lifting the internet ban to the creation of “foreign settlements” in Shanghai under unequal treaties forced on China by imperial powers a century ago.
The article defended the need for internet controls and said “even if one day the free-trade zone does get rid of the [internet] firewall, it would be part of a synchronised effort by the country as a whole.”
“Undeniably, the importance of the firewall will gradually weaken until one day when it will be phrased out. But that will be the result of China’s growing overall strength and confidence, and ... the balance of power between China and the US hegemony. It can not be forced.”
Among the key industries facing reduced restrictions is that of banking and financial services.
Beijing will allow foreign banks to skip long and often bureaucratic approving processes when setting up their wholly owned units in the free-trade zone.
It often took a few years for a foreign bank to first set up a symbolic representative office in China and then upgrade it to a full-service branch.
Peter Wong, chief executive of HSBC Asia Pacific said in a statement that the free-trade zone in Shanghai “will open a new phase in China’s financial reform process, bringing greater flexibility and fresh options to the heart of the world’s most dynamic economy.”
In August, Beijing gave final approval for Shanghai’s free-trade zone, which will span almost 29 square kilometres in the Pudong New Area of Shanghai, which includes the Waigaoqiao duty-free zone, Yangshan port and the international airport area. The Post reported the zone might eventually be expanded to cover the entire 1,210 square kilometre Pudong district if it proved to be a success.