Opinion | Success of Shanghai free-trade zone can usher in next era of reform
Hu Shuli says policymakers must dare to fail, as rules that survive the test will not only lift the city but also help liberalise the Chinese economy
While we wait for details on the Chinese government's latest reform blueprint, Shanghai is already leading by example - by pushing for change through liberalisation. The Shanghai free trade zone was officially launched on Sunday, half a year after the idea was first discussed by the top leaders. Fifty-five pilot initiatives were rolled out, with 43 more to follow by the end of the year.
The significance of this development cannot be overstated. Over the past decade, the progress of Chinese reforms has been stalled by entrenched interest groups fighting against change. This year, however, there has been a decided push to reinvigorate reforms by opening up the economy, and the top-level support for the Shanghai plan has been widely welcomed.
Clearly a major plank of the leadership's reform drive, the Shanghai free trade zone could well mark the third major milestone in the liberalisation of the Chinese economy, following the establishment of the special economic zones in the 1980s, and the country's entry into the World Trade Organisation in 2001.
It is a test of what would work not just for Shanghai, but eventually for the nation
So far, analysis of the free trade zone has largely focused on the impact on stock types and property values. Questions are being asked about "policy bonuses" and the potential benefit for Shanghai's economy. Indeed, the expectations of such a windfall have prompted a number of local governments to apply to set up their own free trade zone.
But these aren't the point of the project, as its official name - the China (Shanghai) Pilot Free Trade Zone - makes clear. The zone is an experiment in market liberalisation, a test of what would work not just for Shanghai, but eventually for the nation. Thus, Shanghai's mission - to liberalise trade, ease rules for investment, streamline its administration and restructure its financial system in line with international standards - is a matter of national interest.
Take the liberalisation of interest rates. The free trade zone is expected to spur financial product innovation and offshore business development, lower the bar for foreign companies' entry into the local financial market, and simplify the rules for both incoming and outgoing investment funds.
According to the Bank for International Settlements, the renminbi now ranks among the top 10 in turnover of foreign exchange, with daily trading of about US$120 billion, out of a global total of US$5.3 trillion. The Shanghai free trade zone will no doubt move the renminbi closer to full convertibility.