BEIJING, Sept 29: China today launched its first free trade zone (FTZ) in Shanghai that will ease restrictions on the yuan, trade and investment to transform the world’s second-largest economy under the new leadership.
The Shanghai FTZ, a pet project of Premier Li Keqiang, was expected to pose a stiff competition to international trade hub Hong Kong. It was envisaged to test how it could boost FDI and reignite the slowing down of the world’s second largest economy, currently stabilising around 7.5 per cent GDP.
China aims to lift the 29 sq-km zone up to international standards featuring convenient investment and trade, free exchange of currencies, efficient supervision and a sound legal environment after two to three years of tests.
The launch marks the beginning of a wide range of reforms aimed at halting the slide of the economic slowdown will start in the Communist giant’s gleaming metropolis, according to the plan issued by the cabinet.
“Under the precondition that risk can be controlled, China will create conditions to test yuan convertibility under the capital account, market-set interest rates and cross-border use of the Chinese currency in the zone,” the plan said.
Chinese banks which have already opened their branches in the FTZ were allowed to conduct offshore business, a move further liberalising financial markets. The banks in the FTZ will be permitted to provide services to depositors resident in other countries.
Shanghai FTZ, a testing ground for financial reform, will also allow eligible foreign financial institutions to set up banks, and team up with qualified domestic banks in joint-ventures. If successful, China plans to extend such hubs in different cities.
The FTZ will allow the market to decide prices of financial institutions’ assets, as policymakers hope to catalyse further reforms. The plan pledged to establish a foreign exchange management mechanism adaptable to trade and investment reforms in the zone.
The FTZ will also push for “a full-scale opening” of the financial service sector to eligible private capital and foreign financial institutions.
Foreign companies are permitted to gradually participate in commodities futures trading in the zone. The zone will also boast easier investment access and greater openness in trade of services, according to the plan, with 18 service sectors open to foreign and private capital from finance, shipping, commerce to culture.
The free trade zone, which received official approval last month, will amalgamate four existing bonded trade zones in Shanghai and span 29 square kilometres.
It will be modelled on existing free trade businesses in the country’s economic hub – Waigaoqiao Free Trade Zone, Waigaoqiao Free Trade Logistics Park, Yangshan Free Trade Port Area and Pudong Airport Comprehensive Free Trade Zone.
Shanghai is home to 432 MNCs at the end of August this year, with another 277 foreign investment companies and 361 research and development centres. (PTI)
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