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

2013/10/28

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
  • Xi Jinping Meets with President Choummaly Sayasone of Laos

    2015/02/21 On November 8, 2014, President Xi Jinping met with President Choummaly Sayasone of Laos at the Great Hall of the People. Xi Jinping welcomed Choummaly to attend the Dialogue on Strengthening Connectivity Partnership in China. Choummaly expressed that Laos highly appreciates China's host of the Dialogue which he believes is of great significance in promoting the cooperation and common development of nations in the region.
  • Democratising finance: China’s P2P industry attracts scammers

    2015/01/31 At the same time as Chinese peer-to-peer lending platform Hengjin Dai launched last June, it used a three-day promotion to lure investors. Just 12 hours later its website went dark. In a similar case the 22-year-old founder of Boliya, an extra P2P platform, whom national TV had featured as a model young entrepreneur, suddenly vanished.
  • China largest importer of farm products from Brazil in 2014

    2015/01/22 China was the country that imported the majority agricultural and livestock products from Brazil in 2014, according to figures from the Brazilian Agribusiness Foreign Trade Statistics System (AGROSTAT). In second to fifth place on the inventory are the United States, the Netherlands, Russia and Germany, and the topl five nations last year imported agricultural and livestock products worth US$42.32 billion, or 43.7 % of the total. China, with a total of US$22.07 billion, was in initial place, and soy complex – beans, meal and oil – accounted for US$17.01 billion, of which US$16.62 billion for soy beans, which was followed by forest products, with US$1.89 billion.
  • Chinese cities see property prices fall

    2015/01/22 4.3% December fall in prices of new homes in large Chinese cities 9% Month-on-month rise in Chinese housing sales in December Prices of new homes in large Chinese cities fell 4.3 % in December from a year before, the major drop since the current data series began in 2011, according to Financial Times calculations based on government figures released yesterday. The continuing downturn in the Chinese real estate market, which began at the start of last year, is creating ructions in Beijing and globally, as slower increase and rising debts in China ripple through international commodity markets.  
  • Dalian Wanda property group, has agreed to buy a stake in Atletico Madrid football club

    2015/01/22 Wang Jianlin, chairman of the Dalian Wanda property group, has agreed to buy a stake in Atletico Madrid football club, the new move by China’s second-richest man to build a world entertainment empire stretching from China’s rust belt to Hollywood. The transaction, worth €40m-€45m, is to be announced at a press conference in Beijing today, according to people close to the transaction. It will see Mr Wang’s Dalian Wanda Group take a 20 % stake in the reigning Spanish champions. Wanda in Beijing declined to comment.