Shanghai Free-Trade Zone Approved

As the first of its kind in mainland China, the Shanghai Free-trade Zone will occupy 28.78 square kilometers of the city’s Pudong New Area, incorporating the Yangshan port and Waigaoqiao duty-free zone. The plan for the free-trade zone (FTZ) was announced by government authorities in July 2013, with the personal endorsement of Premier Li Keqiang who noted that the FTZ would serve as an example of China’s ability to upgrade its economic structure.

The establishment of the Shanghai FTZ has stirred up some controversy in Hong Kong which has served as China’s de-facto financial center from some time now. A recent reported noted that Hong Kong business magnate Li Ka-shing – said to be the richest person in Asia – voiced his opinion that the new FTZ was a serious threat to Hong Kong. But given the shortage of confirmed information as to how the FTZ will operate, and how much actual freedom there will be, some analysts are reluctant to agree with Li Ka-shing, at least in the short term.

It is anticipated that the FTZ will attempt to achieve its goal of turning Shanghai into an international financial center by concentrating on opening up the service sector, and more specifically, financial services, possibly by means of capital account convertibility and interest-rate deregulation. But for Shanghai to participate freely in international markets it will have to attract international players, which would require the Communist party to loosen its grip. Already it has been noted that there is a list of products and services that will be prohibited, with some reports noting that the list may contain as many as 10,000 items.

Before World War II took place, Shanghai was home to one of the largest stock markets in the world, as well as dozens of financial institutions. Many believe that the city can regain its status as a financial powerhouse if it is given the independence to do so. The recent news that China is to lift its ban on Facebook and other restricted sites within the FTZ is seen by some as an indication that authorities are moving in the right direction.

While it has not been confirmed, there is speculation that the Shanghai Free-trade Zone will eventually cover the entire 1,210.4 square kilometers of the Pudong district. It has also been reported that other prominent mainland cities, such as Guangdong and Tianjin, have requested similar approvals from Beijing.