After the big-bang unwrapping, the uncertainty: how free is the Shanghai Free Trade Zone (FTZ)?
As the central government's propaganda machine churned out news of the inauguration on Sunday, which star supporter Premier Li Keqiang and other state leaders decided to give a miss, some analysts have started asking exactly how different will the 29 square kilometre slice of trade haven in coastal Pudong New Area be.
Clues to concessions on corporate income tax have been elusive while very little has been said on capital account and interest rate liberalisation.
While dos are scarce, there is a long list of don'ts in the form of a "negative list" for foreign investors. Moreover, private companies are required to make public their annual profit and loss account, which some say would make foreign companies "uncomfortable".
In Hong Kong, private companies are required to submit their accounts to the inland revenue department, but they are under no obligation to make them public.
"It suggests to us a cautious start and the gradual approach that officials want to take in this experiment," said Nomura chief economist Zhang Zhiwei, referring to the "negative list".
Billed as a path-breaking experiment for China's economic and financial reforms, the zone is a new economic model comprising the existing tariff-free port areas and the Pudong airport, and will integrate free movement of goods with financial innovation. The trial, if proven successful, will be replicated in other parts of the country.
The zone has identified six focus areas: financial services, shipping, trade, professional services, culture and the public sector. A first wave of 36 companies have been given the go-ahead to set up business inside the zone, but Citibank and DBS are so far the only foreign banks chosen to operate there.
However, although the financial sector is the soul of the zone, foreign capital investment is restricted in banks, finance companies, trust companies, foreign exchange dealing, insurance companies, securities entities and microcredit companies.
Other no-go areas for foreign investors include broadcasting and online news. They are even barred from setting up internet cafes and golf courses.
To the disappointment of investors, the zone does not offer any corporate income tax concessions, which they say would severely dent its attractiveness. It was widely expected that the corporate income tax would be reduced from the existing minimum rate of 25 per cent to 15 per cent, or lower.
Wang Wei, tariff director at the Ministry of Finance, has argued the zone would set the precedent for other regions and that it would not be feasible to replicate the 15 per cent tax incentive elsewhere in the country without undermining the national tax net.
Comparing the tax rates offered at the Shanghai zone and that by the new economic zone in Qianhai, Deloitte China tax partner Caesar Wong Shun-on said it would actually make more sense to have preferential tax rates in Qianhai to attract foreign investors because the latter is starting from scratch while Shanghai is an established business hub.
However, among its advantages, foreign parents of firms operating in the zone are allowed to issue yuan-denominated bonds as part of the financial services incentive. The FTZ has also promised to issue business licences and tax registration certificates in four days, compared with the 29 days elsewhere in China.
Despite the zone's overall shortcomings, some analysts said that it should not mean Hong Kong is insulated from competition. "It is a wake-up call for Hong Kong. The city must act proactively and more swiftly for its future," one analyst said.
Wong said Hong Kong should combine its strength with that of Macau and the three new economic zones across the border - Qianhai in Shenzhen, Hengqin in Zhuhai and Nansha of Guangzhou. "In 15 or 20 years, China itself may become a free-trade zone."
Federation of Hong Kong Industries chairman Stanley Lau Chin-ho said that to lift its competitiveness, Hong Kong should integrate deeper with the Pearl River Delta region.
"Guangdong has infrastructure and available land while Hong Kong has free flow of information and expertise in financial services," he said. "Hong Kong should improve its quality of life to attract more talent and foreign investors."
HSBC chief executive, Peter Wong Tung-shun, said he does not think the zone is "a zero-sum game". The zone would create more opportunities, a bigger pool of assets and a more varied range of assets that in turn would benefit Hong Kong, he said.
HSBC, the largest foreign bank on the mainland, is seeking to set up a sub-branch in the free-trade zone.
"We believe that further liberalisation offers new opportunities for foreign banks in areas like product innovation, fund raising and corporate investment," Wong said. "As the largest foreign bank in mainland China, HSBC looks forward to participating in the pilot programmes within the free-trade zone and contributing to its development by leveraging our global expertise."
Daniel Rosen, a partner at the Rhodium Group think tank, sees the zone as a test bed for policies and lessons that might later be applied on a national scale.
"There are tonnes of learning along the way," said Rosen. "Those immediately involved in designing this programme don't have any reservation that this is the right way to go for China in the long run. Letting it seep in gradually allows it to deal with the political resistance."
When deciding on the zone's details, the leadership is likely to keep in mind the experiences of other countries in the region who have opened up their capital markets in the past.
"Most of the ideas being tested at the FTZ are widely practised and tried before by other countries. But many of those countries, such as Korea, Thailand and Malaysia, have suffered financial crises afterwards for reasons such as lack of vigilance or getting the order of capital account liberalisation wrong," said Alaistair Chan, economist at Moody's Analytics.
"The Chinese government is keen to avoid any potential instability from opening up its capital account and so will proceed cautiously," he said.