China turns cautious over Shanghai free-trade port on concerns it might be too free
Officials are emphasising stability in their review of two proposals for the port, concerned over the possible risk of unfettered trade and capital flows
Chinese authorities have turned cautious over the expansion of Shanghai’s free-trade zone into a free port along Hong Kong lines, concerned that unfettered flows of goods and money could pose a risk to financial stability.
According to two sources familiar with the government’s thinking, state authorities and the Shanghai municipality have yet to decide on the size and location for the free-trade port – an upgraded version of the free-trade zone that was launched in late 2012.
Officials are still giving priority to safety and stability in reviewing the two proposals for the port, the sources said. One of the concerns is that monitoring mechanisms may not be adequate to ensure that goods and money stay inside the port area and do not flow outside it without being subject to duties.
“Officials are still worried about risks as they believe large commodity and fund flows at the initial stage would be difficult to control,” one of the sources said. “Some of the funds and commodities may flow out of the zone [without approval or tariffs].”
Shanghai began to draw up plans for the free-trade port last year and submitted the two proposals to the State Council for review and approval earlier this year. Senior government officials have previously said the port would be a fully open market in line with international standards and on a par with Hong Kong and Singapore.
The port would technically be an “offshore territory” slated for reforms on a trial basis. Products manufactured inside the zone would be tariff-free, but customs would levy a tariff if the finished products were sold to clients outside the area.