Shanghai FTZ signals further reform, opening up

The approval of establishment of a pilot free trade zone (FTZ) in the eastern business hub of Shanghai indicates an important move for China's further reform and opening up, analysts say.

The Ministry of Commerce (MOC) announced Thursday the State Council had approved the establishment of the pilot zone on the basis of existing bonded zones in Shanghai, as a crucial move in adapting to global economic and trade development and imposing a more proactive opening-up strategy.

Zhu Jianfang, chief economist at Citic Securities, said the "negative list" approach, which the FTZ will adopt, showed a thinking of power delegation.

"We can no longer rely on preferential policies to improve business and the investment environment. Rather, we should attract investment with highly efficient and transparent administrative services," said Zhang Youwen, an economic researcher at the Shanghai Academy of Social Sciences.

In the FTZ, the reforms featuring power delegation will be deepened and financial, business, cultural, education and medical services, which faced many restrictions before, are expected to enjoy more development opportunities, analysts said.

Service trade is a key sector in an FTZ and thus the service industries will see both challenges and opportunities, according to Chen Bo, an economic and trade expert at Shanghai University of Finance and Economics.

Financial reforms will be accelerated as the marketization of interest rates has been a trend, according to experts.

"The FTZ is not a special zone or new area. Its significance lies not in striving for preferential policies but in establishing a new system in line with international standards and realizing highly efficient management in sectors like investment and trade," said Zhou Zhenhua, director of the Shanghai Municipal Government Development Research Center.

China has rapidly grown into a global manufacturing power with its entry into the World Trade Organization, but the country remains relatively backward in service industries like financing, shipping, commerce, trade and culture, compared with developed nations, experts said.

Shanghai is leading the country in service industry development and the further opening up of the sector is the best choice for the city, according to Chen.

Experiments in the financial sector in the Shanghai FTZ will be the most important part, such as the marketization of interest rates and exchange rate, and offshore finance, said Xu Quan, deputy head of the Shanghai Municipal Office of Finance Service.

Opening up and innovations are crucial for the financial industry, Xu added.

"The official approval of the Shanghai FTZ marks a new phase in China's reform and opening up," said Bai Ming, a researcher with the Chinese Academy of International Trade and Economic Cooperation.

The FTZ establishment will create a new resource allocation mode with a larger scale of opening up, thus releasing new policy dividends and growth poles, according to Bai.

Since taking office in March, China's new government has announced concrete reform plans, including delegating administrative power to lower levels and easing controls in the financial sector.

The new leadership has vowed to push forward reform and opening up and reduce political power on China's market economy. Premier Li Keqiang said that the market is the creator of social wealth and the source of self-sustaining economic development.

Experiences to be gained from the Shanghai pilot zone are expected to be copied in other parts of the country, according to the MOC.

Long Guoqiang, an expert with the Development Research Center of the State Council, said the pilot area was approved "with a view to national development and a new round of reform and opening up."