Shanghai Free Trade Zone : the biggest change in China’s economy in decades ?

The Beijing authorities have launched the Shanghai FTZ or Free Trade Zone, effective this month. This is an area of 29 square kilometers east of Shanghai harbour.

It has been inaugurated on Sundy September 29th 2013 by the trade ministry. Who spoke of the beginning of a new era, that reflects a more active China opening on the world.

There will be services open to the foreign competition, this will be a ttest for Chinese economic reforms that are – or not – to come. There will be test on the yuan convertibilty, and free interest rates in the area, something which is brand new for Chinese authorities.

The first week, 25 companies, Chinese and foreign, were already operating in the area, and 11 banks, most of them from China but there is branches from Citibank and DBS. The zone will be able to attract direct foreign investment, without the bias of offical programs.

The banks settled there will be able to issue bonds on the Chinese market, and there will be a oil international trading platform.

The project is very ambitious but Chinese eaders have kept a low profile, there was not so much adverstising of the project.

A change in logic

The decisive change here is the reverse in logic that it implies.

Regarding foreign companies and investments in China, the habit is to define what is authorized, and all what is not authorized is therefore forbidden.

In this new Free Trade Zones, there are forbidden activities and behaviour, but everything that does not break one of these rules is authorized. This is something completely new.

Still, the vast majority of people that have registered there on the first week, 600 people, are Chinese citizens. It seems that foreigners are more cautious.

If the experiment succeeds, it will mean as well that Shngahia is the very center of China’s economy, which may already be the case, but all its rival will be undermined.

It seems this is an habit of China’s leader to change the econoic rules through special zones, this is what had been done in the 1980s that lead to nation-wide reforms that eventually allow China to enter the WTO. This first experiment that has had spectacular results was launched 34 years ago, it is very possible that this new experiment in Sanghai is the most important event in Chinese economy since then.

Time will tell what is the actual outcome of the Shanghai FTZ.
Sources :

Guardian

BBC

China Market Share

China Market

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