Shanghai - China opened a new free trade zone (FTZ) in Shanghai yesterday in what has been hailed as potentially the boldest reform move in decades, and it gave fresh details on plans to liberalise regulations governing finance, investment and trade in the zone.
The Shanghai FTZ, which covers an area of about 29km2 on the eastern outskirts of the commercial hub, was approved by China’s State Council, or cabinet, in July.
State-run news agency Xinhua quoted Commerce Minister Gao Hucheng as saying the creation of the FTZ was a crucial decision for China’s next wave of reform and opening up.
The State Council said on Friday it would open up its largely sheltered services sector to foreign competition in the zone and use it as a test bed for bold financial reforms, including a convertible yuan and liberalised interest rates.
Economists consider both areas key levers for restructuring the second-largest economy and putting it on a more sustainable growth path.
Some Chinese and foreign firms have already moved to set up subsidiaries in the zone; 25 companies have been approved to set up operations in a variety of sectors, alongside 11 financial institutions, mostly domestic banks but including the mainland subsidiaries of Citibank and Singapore’s DBS.
Some have trumpeted the FTZ, which integrates three existing zones, as comparable to Deng Xiaoping’s creation of a similar zone in Shenzhen in 1978. Many credited that move as being crucial to China’s economy opening up to foreign trade and investment.
Optimism among mainland investors that it will attract fresh investment and engender a wave of fresh infrastructure spending has sent property prices and FTZ-related stocks soaring in recent weeks.
Sceptics, however, point to a similar scheme launched near Shenzhen, in Qianhai, last year, which has failed to live up to expectations. Qianhai was presented as place for radical experimentation with China’s capital account.
Analysts and economists say the plans for Shanghai are more specific and ambitious.
One major planned change officials described yesterday will be in the regulations governing how foreign and Chinese individuals can invest across borders. Previously, investors were only allowed to invest across the border by buying into funds regulated by either the qualified foreign institutional investor programme or the qualified domestic institutional investor programme, both of which are restricted by quotas.
But Dai Haibo, the deputy director of the zone administrative committee, said this would be waived for foreign and Chinese individuals within the zone, who would be allowed to invest funds directly for the first time. He did not say if they would be subject to a quota. He also said foreign banks in the zone would be allowed to issue bonds in the domestic market.
Officials said China would develop an international oil futures trading platform in the zone and encourage foreign participation, part of attempts to upgrade commodities markets and hedge risk in the largest energy consumer.
The insurance regulator added that it would support allowing foreign health insurance providers to operate in the zone and would also back the development of yuan-denominated cross-border reinsurance, among other reforms.
Regulation of banks would be eased, said Liao Min, the head of the Shanghai branch of the China Banking Regulatory Commission, adding the regulator would adjust loan-to-deposit ratios and other rules for banks in the zone.
He said the government would consider easing regulatory requirements for foreign banks when they applied to upgrade representative offices to full branches in the zone, and it would accelerate applications for foreign banks applying for yuan settlement licences.
State media have run commentaries warning against undue property speculation, and have said that the most dramatic reforms were unlikely to be enacted this year.
There have been reports of bureaucratic turf wars over which agency will drive financial reform. The zone proposes to test new policy environments for 18 different industries, ordinarily regulated by different bureaucracies, some with overlapping mandates and conflicting agendas. – Reuters