Shanghai has won approval from the State Council to set up the mainland's first free-trade zone, moving it closer to becoming a global financial, trade and shipping hub to rival other Asian cities such as Hong Kong.
The free-trade zone would also likely serve as a testing ground for the central government led by Premier Li Keqiang to launch major financial reforms as part of a plan to boost the service economy and cut reliance on exports.
A general plan governing the operation of the free-trade zone that spans 28.78 square kilometres in Waigaoqiao, Yangshan and Pudong districts in Shanghai has yet to be released. Lawmakers needed to approve amendments to existing laws to legalise certain experiments, a statement posted on the Ministry of Commerce said yesterday.
"Shanghai has its economic strength as well as geographical and political advantages in the greater China economic circle," said Professor Liu Yuanchun from Renmin University.
"It's possible that as Shanghai's free-trade zone plan proceeds, Hong Kong's status as the region's financial centre might be weakened, but when that day may come is uncertain."
The statement did not give more details about the plan.
A free-trade zone, or free port, is where customs authorities allow the flow of goods unhindered with zero tariffs on imports.
Sources said earlier that Li aimed to allow foreign banks to set up subsidiary or joint-venture operations and give permission for foreign commodities exchanges to own warehouses in the free-trade zone.
Liu said Shanghai may change the mainland's yuan internationalisation course by luring business from Hong Kong, currently the country's major yuan offshore trading centre.
"The most valuable part of the Shanghai free-trade zone plan is in the financial sector, such as allowing individuals to directly invest into overseas capital markets," Liu said. "Without free cross-border capital flows, there's no way Shanghai can really emerge as a global financial centre."