President Xi breathes new life into Shanghai FTZ as he hopes to replicate reforms across China
- President Xi says the free-trade zone will be encouraged to take bold steps to facilitate more trade and investment
- Xi also says that the integration of the Yangtze River Delta region would be a national strategy to boost regional economic development
China’s President Xi Jinping on Monday breathed new life into Shanghai, announcing plans for an equity market for start-ups and expansion of the free-trade zone, hoping to revive the flagging fortunes of the economic testing ground seen as a rival to Hong Kong.
Xi said in a speech during the China International Import Expo that Shanghai free trade zone will be encouraged to take bold steps to further ease cross-border trade and investment after the expansion, and hoped the experiences will be replicated in other parts of the mainland.
In the same speech, Xi also unexpectedly ordered the setting up of a new equity bourse in the city to help tech companies raise capital. The move pits the yet to be formed stock market against the likes of Nasdaq and the newly reformed Hong Kong stock exchange for start-ups to raise funds.
He did not elaborate on the location or the size of the new areas that will be included in the FTZ.
But Xi’s remarks about the Shanghai FTZ show Beijing’s resolve in conducting drastic liberalisation, especially in service sectors such as finance, education and culture.
“The Shanghai FTZ will be given new tasks in the future after the expansion,” said Chen Bo, a professor at the Huazhong University of Science and Technology and an adviser to local governments including Shanghai. “China wants to use the zone to display its willingness to open the market now that the US and China are working to solve the trade issues.”
Shanghai pioneered the move among provincial-level regions to establish the FTZ in 2013 with an initial size of 28.78 sq km.
The zone was designed to be a free marketplace like Hong Kong, where greater cross-border commodity and fund flows were encouraged to spur business activities.
Beijing pledged to make the yuan fully convertible inside the zone to attract global investors.
The zone was expanded to 120 sq km in 2015 amid criticism about its slow liberalisation pace.
To date, the yuan has yet to become convertible under the capital account inside the zone.
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Two local government sources said the new area that might be added to the FTZ could include part of the southern Hongqiao area where the import expo, a six-day trade event aimed to show China’s economic might and the huge market potential in the world’s most populated country, is being held.
The president said in his speech that Beijing would loosen its grip on foreign investment in culture and medical industries to introduce world-class services to the market.
The Shanghai municipality plans to turn Hongqiao area into an international medical centre by drawing top hospital chains and talent from across the globe.
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Shanghai, once the mainland’s economic locomotive, has been lagging behind its provincial-level counterparts since 2008 in expanding economic output, as the metropolis shifted its focus on service sectors from manufacturing industries.
Xi also announced that the integration of the Yangtze River Delta (YRD) region would be a national strategy to boost regional economic development.
The YRD includes Shanghai and the mainland’s most affluent provinces of Zhejiang and Jiangsu.
“With Shanghai as the centre of finance, shipping and trading, Hangzhou with its advantages in digital businesses and Suzhou’s solid base in manufacturing, YRD has a promising future if there is a concerted effort to develop these different parts.”
The FTZ and YRD policies, designed to bolster Shanghai, are seen as a challenge to the Greater Bay Area that includes Guangdong-Hong Kong-Macau, as both regions will be competing against each other in drastically opening their markets to lure professionals and capital.
“The major battleground will be the services sector,” said Chen. “The opening of China’s service industries such as finance and education is no easy job because they are regarded as vital to national security.”
Analysts said that the Greater Bay Area has an advantage over YRD in attracting financial institutions and professionals given Hong Kong’s role as an established international financial hub.
“Shanghai still has to secure approval from the Beijing-based ministry-level authorities before implementing any reform measure,” said Wang Feng, chairman of financial services group Ye Lang Capital. “It is unlikely that the YRD can race ahead in terms of financial deregulation.”
Huang Zhilong, a researcher with Suning Institute of Finance, said the two regions will tap their areas of strength, but they are equally important for Beijing to sustain growth of the world’s second-largest economy.