Promises of free trade zone's benefits to Shanghai residents ring hollow
A pilot free-trade zone aimed at making Shanghai the envy of the rest of the mainland has so far failed to bring much benefit to residents
To supporters, Shanghai's pilot free-trade zone is a prelude to profound economic shifts that will make the city Hong Kong's rival and the envy of the rest of the mainland.
Shanghai was chosen to host the mainland's first free-trade zone and will be given a much freer hand with cross-border money flows and other liberalisations to bolster trade.
But residents have mostly ignored the fanfare, giving policymakers the cold shoulder as residents are unlikely to personally enjoy the economic freedoms.
At a press conference last Sunday, Dai Haibo , deputy director of the zone's administrative committee, sidestepped a question on what Shanghai people had to gain from the project, in particular the planned banking reforms.
Shanghai officials began mulling the plan to develop the city into a Hong Kong-like free port more than a decade ago, envisioning a flourishing metropolis taking shape amid freer flows of money and goods.
At first, many Shanghai residents thought they would be able to freely deposit cash at the banks based in the zone before transferring the money abroad to buy properties and equities.
However, policymakers have largely overlooked benefits to individuals, focusing instead on attracting corporate and institutional investors. It is believed that local residents will still be barred from taking advantage of the zone's cross-border money flows.
Wealthy mainlanders at present resort to underground banks or employ other complicated methods to complete overseas investments. They often deposit yuan in foreign banks' mainland branches as collateral to borrow the equivalent in foreign currencies from the lenders' outlets overseas.
Beijing said it would make the yuan fully convertible in the zone during the trial run. Cash-rich individuals hoped the territory covering almost 30 square kilometres would become a magnet for cash deposits as funds could be freely remitted to foreign accounts.
Banking regulators reiterated they would monitor capital flows through the zone to prevent inflows of hot money and huge capital outflows, both of which could harm the economy.
The affluent Yangtze River Delta region has seen soaring demand from residents wanting to transfer their assets abroad and regulators worry that trillions of yuan could leave the country.
Officials have been tight-lipped about whether residents can buy goods in the zone without incurring the mainland's steep import duties. For now, it appears thousands of Shanghai shoppers will continue to seek their bargains in Hong Kong.
However, given the small geographic size of the pilot zone in Shanghai, there will be physical limitations on the types of goods and commodities traded there.
Another selling point for the zone was that it would create a large number of jobs, a claim that most residents brushed aside. The main beneficiaries so far are Shanghai apartment owners as property prices have risen since the announcement.
But even here there is a catch. The government is expected to impose a property tax on existing homes and rising property values will only incur a higher tax burden on owners.