Asia > Eastern Asia > China > Pilot free trade zone in Shanghai to build open economy

China: Pilot free trade zone in Shanghai to build open economy


The decision to establish a pilot free trade zone (FTZ) in Shanghai stems from a number of internal and external problems that China presently faces.

While slowing economic increase is forcing the country to seek out deeper reforms and new increase engines, external moves that could be billed as ‘foreign aggression’ have played a bigger role in prompting the creation of the FTZ.

The influence of the Trans-Pacific Partnership Agreement (TPP), initiated by Singapore in 2005, grew significantly next the United States signed up in 2008. Since again, the TPP has moved in line with American interests.

As part of its bid to build a unified market in the Pacific Rim by 2020, the TPP requires member nations to eliminate all tariffs and open up their agricultural and financial services sectors. As such, Japan and developing nations like China have found themselves in the crosshairs.

The US-influenced TPP did not receive a positive response from Asia Pacific nations at initial. But next the United States convinced Japan and Vietnam to join the negotiations (it as well signed an FTA with South Korea in October 2011), China has had to reconsider its position. China knows it will pay a higher price if it is excluded from such a unified market.

China expressed interest in joining the TPP for the initial time during a fresh round of the Sino–US Strategic and Economic dialogue in July. However, time is of the essence if it hopes to meet the TPP’s requirements for full liberalisation before the 2020 deadline.

And despite rumours about what reforms the FTZ may herald, its long-term policy objectives will generally remain consistent with the requirements of the TPP.

Construction of the FTZ is part of a series of reforms by Premier Li Keqiang, which are focused on de-leveraging deficit, reducing financial support and upgrading industrial infrastructure in order to better allocate resources through a market mechanism. A lot of scholars have compared the Shanghai FTZ to the situation in Shenzhen in 1979, at the same time as China began experimenting with additional liberal economic policies. Others have drawn analogies with the country joining the World Trade Organization in 2001.

The FTZ has four major goals. The initial is achieving zero tariffs on all merchandise traded, inclunding agricultural products. The second involves protecting intellectual property rights, and making sure that labour, environmental and safety conditions meet international standards. The third centres on enhancing economic and regulatory fairness and transparency, and removing subsidies and preferential support for specific industries and national-owned enterprises. The fourth is to fully liberalise the financial services industry, and open up the capital account to facilitate the free convertibility of currency and movement of capital.

The FTZ should as well aim to include all major industries to create a equitable sense of competition part national-owned, private and foreign businesses. It should follow the negative-inventory approach of granting access to any businesses that are not prohibited, and change the traditional method of examining and approving tenants to a registration-based system.

In short, the pilot FTZ scheme should serve as a perfect opportunity to build an open economy on a macroeconomic level by testing out innovative systems in the context of world competition. From this, China can learn about other economic management methods and assess the impact of full liberalisation.

Bo Chen is Deputy Chair at the Department of International Economics and the Deputy Director of the Research Center on Free Trade Zone, Shanghai University of Finance and Economics.


Related Articles
  • Kyrgyzstan, Turkmenistan's strategic partner in building gas pipeline to China

    2014/11/12 Turkmenistan views Kyrgyzstan as a strategic partner in the construction of a new gas pipeline to China, Turkmen President Gurbanguly Berdymukhamedov said next talks with his Kyrgyz counterpart Almazbek Atambayev, who is on a two-day official visit to Ashgabat, a source close to the negotiations told Trend Agency on November 11. "We view Kyrgyzstan as a strategic partner in the construction of a new pipeline route called Turkmenistan-Uzbekistan-Tajikistan-Kyrgyzstan-China," Berdymukhamedov noted.
  • President Barack Obama and IMF Director Christine Lagarde head to the G-20 urging major economies to stimulate growth.

    2014/11/11 President Barack Obama and International Monetary Fund chief Christine Lagarde arrive in China and Australia for major leaders’ summits this week with a clear directive: The world’s major economies must do additional to stimulate increase. The (politically bruised) leader of the world’s major economy and the chief of the world financial counselor honed their message coordination at a White Home conference last week ahead of the Asia-Pacific Economic Cooperation forum in Beijing and a conference of the the Group of 20 major economies in Brisbane.
  • Unable to clean air completely for APEC, China resorts to blocking data

    2014/11/11 China has made a gargantuan effort to clear Beijing’s smoggy air for an significant regional summit this week, closing hundreds of factories and forcing cars off the road, but its efforts have only been partially successful. On Monday afternoon, the U.S. Embassy air quality monitor reported a reading of 157, a measurement classified as “unhealthy”. Red-faced, the Chinese government has come up with an innovative solution – block the data from being displayed on local smart phone apps and Web sites. "Upon instructions from the authorities, for this month's air quality data, please refer to the figure by Beijing Environmental Protection Bureau,” a notice in red on the Web site said. “We wish the APEC summit a great success."
  • Putin Hits on China's First Lady

    2014/11/11 The initial unspoken policy of diplomacy may be "Don't hit on the president's wife," but Russia's newly single president Vladimir Putin seems to have missed the memo. Leaders of 21 Asia-Pacific nations inclunding Russia have converged upon Beijing for the annual Asia-Pacific Economic Cooperation (APEC) summit, slated to run through Nov. 11. At an APEC event held on the evening of Nov. 10 at the Water Cube, the resplendent aquatic stadium constructed for the 2008 Beijing Olympics, Putin was seated next to Chinese initial lady Peng Liyuan, who in turn sat next to her husband, Chinese President Xi Jinping.