Questions linger on Shanghai's free port

The go-ahead to build its own free-trade zone might enable Shanghai to shake its export business out of the lethargy into which it has declined, and restore the sector to its former role as the mainland's economic locomotive.

But at this stage much remains uncertain about the plan to create the mainland's first free port in the city.

Shanghai first entertained ambitions of developing a Hong Kong-style free port more than a decade ago, in the belief that flourishing cargo and capital flows could help the city's ambition to become a gateway to China. But it was not until last month that Beijing officially gave it the go-ahead to build the free-trade zone, also known as a free port. The approval came in times of trouble as Shanghai's exports and imports continued their downward trend in the first half of the year.

In 2012, the combined value of exports and imports edged down 0.2 per cent from a year earlier, the first time trade figures declined since 2009. In the first six months of this year, exports dropped 4.3 per cent from the year-ago period while imports decreased 3.2 per cent.

Weaker external demand, a strengthening yuan, and a credit squeeze at home have been wreaking havoc on the mainland's export-oriented businesses over the past two years.

Shanghai spearheaded China's move to integrate its economy with global markets after the country adopted an "opening-up" policy in the 1980s. Exports and imports were to be the key gauge of the economic success of the move, and one of the major growth drivers of the economy. A free-trade zone, into which goods can be imported, processed, and then re-exported without custom duties, will help achieve this objective.

Yan Jun, chief economist of the Shanghai Statistics Bureau, told reporters recently that a free-trade zone would do more than offer a series of preferential policies. Instead, a series of bold reforms would be carried out on the comprehensive platform aimed at facilitating investments and trade.