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Shanghai free-trade zone

Go with the flow – China to develop Shanghai’s free-trade zone and port at ‘orderly pace’

Official says detailed plans to develop free-trade port to be unveiled very soon

PUBLISHED : Monday, 01 January, 2018, 12:01pm
UPDATED : Monday, 01 January, 2018, 10:45pm

Enthusiasm is creeping ahead of reality as Shanghai makes plans to further develop its free-trade zone into a Hong Kong-style free marketplace.

And while there is no concrete operating guide to work from, officials, researchers and company executives are in consensus that the city will need to expand the size of the free-trade zone, liberalise yuan capital accounts, loosen customs requirements and grant free visas to business travellers as it edges closer to becoming a global financial and shipping hub.

“A free-trade port can’t be built overnight,” said Chen Bo, a professor at the Huazhong University of Science and Technology. “The geographic size doesn’t appear to be a main concern since the central government will allow the free-trade zone to expand once the top officials are convinced of the merits of the policies.”

Chen, also an adviser to the local government on policymaking, said visa rules would also be eased to attract more businesspeople to the free-trade port, an upgraded version of the existing zone.

The free-trade zone presently covers a total area of more than 120 square kilometres, more than fourfold its initial size of 28.78 square kilometres when it was established in 2013.

But this still does not amount to a thriving free market on par with international cities such as Hong Kong and Singapore. And the national financial authorities have yet to make the yuan fully convertible under the capital account, a stumbling block to the freer cross-border flow of capital.

Two officials with the local port authority said a Hong Kong-style free market remained a far cry despite a step up in efforts by Shanghai to hone the image of its free-trade zone.

Industry insiders view Shanghai port plan to rival Hong Kong as unrealistic

When the city launched the zone four years ago, local officials aimed to transform it into a mini Hong Kong, where businesses from around the world could freely conduct commodity trading and carry out investments without customs regulations and foreign exchange controls.

But the free-trade zone, the first of its kind on the mainland, failed to live up to expectations amid slow progress in liberalising the yuan and limited space for large-scale foreign businesses to set up their production facilities.

“The pace of conducting pilot reform measures on capital flows and financing should be accelerated to reinforce the development of the free-trade port,” said Liu Xuezhi, an analyst with the Bank of Communications. “The measures will be of great significance to the country’s further opening up.”

The pace of conducting pilot reform measures on capital flows and financing should be accelerated to reinforce the development of the free-trade port
Liu Xuezhi, analyst with the Bank of Communications

A free-trade port allows goods and capital to flow in and out freely, without import duties being charged. And except for businesses included in a “negative list”, all investments can be made in the zone without going through the government’s approval procedures.

China’s vice-premier, Wang Yang, has backed mainland cities including Shanghai to build free-trade hubs in line with international practices. A local official said detailed plans to develop the free-trade port are likely to be unveiled “very soon”, but declined to disclose details.

“Shanghai already has the most advanced facilities in the world to handle cargo, and the city is in the process of fine-tuning its system of customs clearances and financial services,” said Xiao Yingjie, the president of the Merchant Marine College at Shanghai Maritime University. “The city is prepared for an increasing volume of cargo flows amid the rising international profile of the Chinese economy.”

In December, Shanghai International Port (Group), the city’s main public terminal operator, started operations at seven new berths at Yangshan deep-water port, an additional capacity of 4 million twenty foot equivalent units.

Shanghai port embraces new technology in arms race to defend global shipping hub status

The new berths, which cost 12.8 billion yuan (US$1.94 billion), have 130 automated guided vehicles, the largest fleet of any container terminal worldwide.

Huazhong University of Science and Technology’s Chen suggested that authorities fully acknowledge the “offshore” status of the free-trade port, giving domestic and foreign companies a free hand to trade and manufacture goods in the territory.

“Preferential taxation policies in the free-trade port are also expected,” he said. “Relevant policies to make the free-trade port an investor-friendly place are key to success.”

Chinese President Xi Jinping said in March the mainland’s 11 existing free-trade zones would explore ways to build free-trade ports.

“There will be some progress, but in a gradual process and at an orderly pace,” said Chen. “This is the way Chinese governments implement major reforms.”

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