Hong Kong faces new competition as Shanghai plans free trade zone

Shanghai will start building a free-trade zone this year in a major step towards its long-term ambition of becoming a leading international trading hub.

The first step will be to upgrade and expand the city's bonded areas, where goods can be imported, processed and re-exported without the intervention of customs authorities.

It would be the first such free-trade zone in China if approved by the central government, Xinhua said. The announcement was made yesterday by Shanghai's acting mayor, Yang Xiong , in the government report delivered at the municipality's People's Congress.

"In 2013 … we will build the pilot case of the free-trade zone in accordance with the state's planning," Yang said, adding that the municipality would push forward reforms including foreign-denominated offshore bank accounts and financial leases.

The metropolis wants to attract 150 more multinationals to set up their regional headquarters over the next five years.

Xinhua yesterday quoted Wan Zengwei, director of the Pudong Academy of Reform and Development in Shanghai, as saying the project would take about three years to complete.

The mayor's report did not give further details on the zone, which analysts said could become a competitor to Hong Kong if it were big enough and competitive tax polices were approved by the central government.