BEIJING: China has officially unveiled details of its first free trade zone (FTZ) in Shanghai, shedding light yesterday on the reform path of the new leadership as it aims to transform the world’s second-largest economy.
The FTZ project, which received government approval last month, will be inaugurated on Sunday, the official Xinhua news agency reported this week. The government will allow free yuan convertibility under the capital account on a trial basis, and test market-set interest rates and cross-border use of yuan in the zone.
Restrictions on foreign investment will also be eased, as regulations on operations of foreign firms and Sino-foreign joint ventures will be “temporarily adjusted” in the zone for three years from October 1, according to the details, which are largely in line with a draft plan. Economists said the contents released yesterday indicated that China will accelerate its capital account convertibility and financial sector reforms, but its ability to manage capital flows will also be tested.
“It is politically wise to conduct a pilot in a small and restricted area as the Chinese authorities intend to contain potential risks,” ANZ bank economists wrote in a research note yesterday.
“We view the ability to control capital flows as the biggest challenge for the FTZ,” the economists said, adding onshore and offshore interest rate differentials will spur capital inflows.
The free trade zone will amalgamate four existing bonded trade zones in Shanghai -- China’s commercial hub -- and span almost 29 square kilometres (11 square miles), according to Xinhua.
The zone is part of structural reforms that authorities have pledged to push forward to shift the economy away from dependence on big-ticket investments and more towards consumer demand as the key growth engine.
China’s economy, the world’s second largest, expanded 7.7 percent in 2012, its slowest pace in 13 years. Growth stood at 7.7 percent in the first three months of this year and slowed further to 7.5 percent in the April-June period.
“It (the zone) should be made an experimental field to push forward reforms, improve the open economy, as well as accumulate experience that can be duplicated and promoted,” the State Council said.
However, the announcement made no mention of a reported plan to liberalise the country’s tightly-controlled Internet sector in the zone. According to the State Council, China will also ease restrictions on trade as well as 18 service sectors. AFP
