VIEW | LI YANG Shang­hai FTZ hasn’t taken bold steps in fi­nan­cial re­form

China Daily (Canada) - - SHANGHAI -

The es­tab­lish­ment of the Shang­hai Free Trade Zone last year has put the city on the front­line of China’s fi­nan­cial re­form.

The cen­tral govern­ment is look­ing to the Shang­hai FTZ to try out poli­cies for na­tional fi­nan­cial re­form, and to bet­ter pre­pare China for such re­gional free-trade frame­work as the Trans-Pa­cific Part­ner­ship.

Pres­i­dent Xi Jin­ping and Pre­mier Li Ke­qiang have re­it­er­ated on dif­fer­ent oc­ca­sions that Shang­hai should take bold steps to ex­per­i­ment with new prac­tices that will ben­e­fit na­tional fi­nan­cial re­form and China’s fur­ther in­te­gra­tion into global trade.

But the Shang­hai govern­ment still has a wait-and-see at­ti­tude, and Shang­hai of­fi­cials seem to be miss­ing the big­ger pic­ture.

If Shang­hai wants to re­gain its ti­tle as a global fi­nan­cial cen­ter, it should not re­gard as its achieve­ment the guar­an­tee­ing of free­dom for stan­dard prac­tices of in­ter­na­tional fi­nan­cial cen­ters.

The Shang­hai FTZ ad­min­is­tra­tion pub­lished the first “neg­a­tive list” in China last year, a sym­bolic move meant to cut the govern­ment’s red tape. But the list con­tained more than 1,000 banned ar­eas.

“More trou­bling is that few de­tails were given at all,” com­mented the Econ­o­mist in one ar­ti­cle about Shang­hai’s FTZ.

Para­dox­i­cally, the lo­cal govern­ment is cur­ing its bu­reau­cracy with­out minc­ing steps.

Shang­hai was al­ready a global fi­nan­cial cen­ter a century ago when Tokyo, Hong Kong and Sin­ga­pore were lit­tle known. In its quest to re­gain the ti­tle, Shang­hai needs to catch up with the front-run­ners, but not al­ways be con­tent with leading other Chi­nese prov­inces.

If the Shang­hai FTZ ad­min­is­tra­tion can­not ac­quire an in­ter­na­tional vi­sion, the Shang­hai FTZ may fol­low in the foot­steps of the Pudong new district. A des­o­late area east of Huangpu River be­fore the 1990s, Pudong was the cen­tral govern­ment’s early ef­fort to re­newal. It be­came a lo­cal show­case, con­trib­uted to the lo­cal econ­omy’s growth and pro­moted sev­eral lo­cal of­fi­cials to the cen­tral govern­ment.

But un­like Shen­zhen, Chi­nese main­land’s first spe­cial eco­nomic zone bor­der­ing Hong Kong that was ini­ti­ated in the 1980s, Pudong has not gen­er­ated as much spillover for other parts of China.

Lo­cal of­fi­cials re­main growth-driven de­spite their pro-re­form pledges. Many of them tend to equate an FTZ with tai­lor-made pref­er­en­tial poli­cies in land, tax and ex­port.

Al­though the cen­tral govern­ment stresses re­peat­edly that it will not roll out any pref­er­en­tial poli­cies for an FTZ, it still can­not dampen lo­cal coun­ter­parts’ de­sire to set up an FTZ.

At least 30 prov­inces and cities have shown will­ing­ness to set up an FTZ this year, in a sim­i­lar ma­nia as they showed in the 1990s when they ap­plied to set up high-tech de­vel­op­ment ar­eas and in­dus­trial parks at var­i­ous lev­els. The ar­eas and parks flour­ished on low tax and cheap land. Many have with­ered now with the rise of la­bor costs and the de­cline of ex­ports.

The na­tional FTZ craze mo­ti­vated the Shang­hai govern­ment in its most re­cent rules last week to pres­sure the Shang­hai FTZ to mete out valu­able and re­pro­ducible lessons for na­tional fi­nan­cial re­form in less than the planned three years.

An­a­lysts be­lieve that deep­en­ing fi­nan­cial re­form within the FTZ and ef­fec­tive con­trol over the bor­der be­tween the FTZ and the rest of China are cen­tral to its suc­cess.

There should also be an ef­fec­tively con­trolled bor­der be­tween the FTZ and the rest of China to man­age the risks, across which cap­i­tal flows are per­mit­ted un­der close su­per­vi­sion, in case spec­u­la­tors and ar­bi­tragers take ad­van­tage of the in­com­plete­ness of the ren­minbi’s ex­change-rate re­form.

Xia Bin, a se­nior econ­o­mist with Tian­jin-based Nankai Univer­sity and a coun­selor for the State Coun­cil, pro­posed that all fi­nan­cial sec­tor prac­tices should be done ac­cord­ing to mar­ket rules and in­ter­na­tional con­ven­tions in the Shang­hai FTZ. “Other­wise, the FTZ loses its mean­ings,” Xia said.

YANG YI / FOR CHINA DAILY

The main en­trance of Shang­hai FTZ Ad­min­is­tra­tion Com­mis­sion.

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