Shang­hai FTZ needs neat, sta­ble re­forms to make it

China Daily (Canada) - - CHINA - By LI YANG in Shang­hai liyang@chi­nadaily.com.cn

Few ex­per­i­ments can shun risks. But some must.

Pres­i­dent Xi Jin­ping, in a re­cent visit to Shang­hai, again urged the city to push the en­ve­lope in ex­plor­ing a trans­plantable path for fi­nan­cial re­form through ex­per­i­ments in its pi­lot free trade zone (FTZ), and stressed risk preven­tion as the “base­line” for re­form.

This is the first time the state leader warned the pathfind­ers not to make mis­takes while blaz­ing a trail.

Shang­hai re­sponded that it will hand in about 30 trans­plantable re­form poli­cies to the cen­tral govern­ment this year af­ter fin­ish­ing the risk-con­trol “com­pres­sion test” for all of them.

China’s fi­nan­cial re­form has rolled down a steep slope tilted by its fast growth to such a cross­road that rush­ing straight along the old way may fi­nally kill the econ­omy with se­vere re­stric­tions.

The mal­adies are ob­vi­ous. The coun­try has ro­bust eco­nomic growth and a chaotic stock mar­ket plagued by scams and spec­u­la­tion. The coun­try has more money printed than the econ­omy needs, and a real econ­omy thirsty for cash. The coun­try has the world’s most prof­itable state-owned banks that just rely on loan­ing to the al­ready debt-rid­den lo­cal gov­ern­ments, bub­ble-blow­ing real es­tate de­vel­op­ers and illper­form­ing state-owned en­ter­prises.

Tak­ing a turn means the cre­ation of a new blood circulation and the re­moval of some fail­ing or­gans. The econ­omy will slow down, but will take up speed in the long run in a sus­tain­able di­rec­tion.

But it takes power and skill to make the turn­ing sta­ble and neat.

Com­pared with the am­bi­tious of­fi­cials in Shen­zhen’s eco­nomic spe­cial zone in 1980s, with which the Shang­hai FTZ is of­ten com­pared to by some an­a­lysts,

Shang­hai of­fi­cials have not so far demon­strated their ca­pac­ity to “take the ox’s nose” for the turn.

The main tasks for Shang­hai in­clude a mar­ket-ori­ented in­ter­est rate, mak­ing the Yuan con­vert­ible for cap­i­tal ac­counts, re­al­iz­ing a mar­ket- based ex­change rate re­form, and build­ing up an ef­fi­cient ad­min­is­tra­tion sys­tem for a mod­ern fi­nan­cial in­dus­try. None of this is easy.

The most re­ported achieve­ment of the FTZ since its es­tab­lish­ment last Septem­ber is a long “neg­a­tive list”, the first of its kind for gov­ern­ments in China, which is widely eu­lo­gized by the me­dia as a sig­nal that the govern­ment will cut the red tape.

But the list, con­sist­ing of nearly 200 “don’ts”, is ac­tu­ally “a col­lected ver­sion” as the list’s drafters ad­mit­ted re­cently of the banned businesses ap­pear­ing in all cur­rent poli­cies, decrees and laws. The FTZ will cut it by one third soon.

Most of the 10,000 en­ter­prises reg­is­tered in the FTZ are not new and dis­ap­pointed with the slow progress in some key re­forms dur­ing the last nine months.

The FTZ ad­min­is­tra­tion’s sim­pli­fy­ing of the pro­ce­dures of new busi­ness reg­is­tra­tion, in­vest­ment and trade is ac­tu­ally within its own reach which is com­mon in many other eco­nomic de­vel­op­ment zones in China.

Any con­crete changes in the cus­toms, bank­ing and fi­nan­cial ad­min­is­tra­tion in FTZ are pre­req­ui­site with the “green lights” of rel­e­vant cen­tral min­istries in Bei­jing.

The FTZ ad­min­is­tra­tion has to stand out to col­lect dif­fer­ent min­istries’ opin­ions, lobby their de­ci­sion-mak­ers and co­or­di­nate their ac­tions de­spite the lat­ters’ su­pe­rior rank in the bu­reau­cratic sys­tem.

“Al­most ev­ery im­por­tant re­form poli­cies we made is re­lated to more than two cen­tral govern­ment de­part­ments,” said Jian Da­nian, vice-di­rec­tor of FTZ ad­min­is­tra­tion. “We formed an in­for­ma­tionex­change plat­form and co­op­er­a­tion plat­form with rel­e­vant min­istries. Other­wise re­form is dif­fi­cult.”

Jian is right. China’s re­form is no longer the task of an in­di­vid­ual zone or a city, but a sys­tem­atic project in­volv­ing all key min­istries in Bei­jing.

In this sense, press­ing Shang­hai to act as re­form pioneer to­day, a role it had never played, be­comes a test of Shang­hai of­fi­cials’ abil­i­ties of co­or­di­nat­ing dif­fer­ent min­istries.

In late 1970s, Deng Xiaop­ing ear­marked Shen­zhen as an ex­per­i­men­tal field for China’s mar­ket re­form. Lo­cal of­fi­cials were given con­sid­er­able free­dom to “cross the river by feel­ing for the stones on the riverbed”.

The “cul­tural revo­lu­tion”( which ended soon af­ter Mao’s death, taught the na­tion, in a costly and harsh man­ner, that no­body ben­e­fits from class strug­gle. Build­ing a mar­ket econ­omy be­came not only cen­tral to govern­ment’s work soon, but also a na­tional con­sen­sus.

But how to trans­form a planned econ­omy to mar­ket econ­omy re­mains a ques­tion.

Deng vis­ited Shen­zhen in 1984, a year dra­ma­tized by Ge­orge Or­well, to see if mar­ket re­form works there af­ter the spe­cial zone de­vel­oped for five years, other than urg­ing Shen­zhen to go faster, as Xi did to­day.

Deng was happy with, if not sur­prised at what he saw on the roof of a sky­scraper not yet fin­ished in Shen­zhen.

Ev­ery­one ben­e­fits from the Pareto im­prove­ment in 1980s in dif­fer­ent de­grees, though. And the mar­ket re­form in Shen­zhen eas­ily spread na­tion­wide with the sup­port of cen­tral govern­ment. The other 14 coastal cities were cho­sen as open-up cities the next year.

Yet, the growth-ori­ented de­vel­op­ment in ab­sence of a ma­ture rule by law, cre­ates an ap­palling in­come gap, a mighty govern­ment and se­ri­ous en­vi­ron­men­tal pol­lu­tions in the 30 years that fol­lowed.

The en­vi­ron­ment for re­form­ers to­day is com­pletely dif­fer­ent. Re­form is no longer a na­tional con­sen­sus, but a bal­ance of in­ter­ests among dif­fer­ent groups.

To­day, the river is too deep to wade across. Some just “be­come too ad­dicted to fondling the riverbed stones to cross the river”, teased some crit­ics in China.

Pre­mier Li Ke­qiang pointed out two years ago the govern­ment should not stop mak­ing the cake larger and larger and the cake must be cut fairly from now on. He hinted the govern­ment would not look into the people get­ting larger shares of cake be­fore, but the lucky dogs must ad­just their ex­pec­ta­tions for the fu­ture.

Yet, the com­pro­mise at­ti­tude with the vested in­ter­ests did not beget an eas­ier re­form in the past two years.

He noted one year ago touch­ing in­ter­ests is more dif­fi­cult than touch­ing souls. He an­grily pounded the ta­ble in Bei­jing last week as China Busi­ness News re­ported, and vowed to in­vite the third-party watch­dogs to su­per­vise and eval­u­ate lo­cal govern­ment’s im­ple­men­ta­tion of re­forms.

Gen­er­ally speak­ing, the re­sis­tance Shang­hai of­fi­cials meet in fi­nan­cial re­form comes from the state-owned en­ter­prises and banks which ben­e­fit from their mo­nop­oly over fi­nan­cial re­sources and mar­ket as well as the cor­rupt of­fi­cials seek­ing il­le­gal prof­its from the pow­er­money trade in the process.

Un­like invit­ing for­eign in­vest­ment in the first mar­ket re­form ini­ti­ated by Deng, the cur­rent re­form­ers, given China’s huge eco­nomic size and pre­vail­ing com­plaints about un­fair­ness and pol­lu­tion, must be vig­i­lant to the risks caused by lib­er­al­iz­ing the Yuan’s ex­change rate and maket-rate in­ter­est rates, and eval­u­ate fi­nan­cial re­form’s in­flu­ences on the real econ­omy and over­all so­cial sta­bil­ity.

Xi Jin­ping’s vig­i­lance to the risks of fi­nan­cial re­form is jus­ti­fi­able. But he needs to give more sup­port to help Shang­hai co­or­di­nate in­ter­ests and ac­tions of dif­fer­ent min­istries di­rectly un­der his lead­er­ship.

Or, an ex­per­i­men­tal field will only be­come just a show­case.

HUANG JING­WEN / XIN­HUA

Pres­i­dent Xi Jin­ping (hold­ing book) talks with work­ers at Waigao­qiao com­pre­hen­sive ser­vice hall of the China (Shang­hai) Pi­lot Free Trade Zone (FTZ) dur­ing his in­spec­tion in Shang­hai, May 23.

Newspapers in English

Newspapers from China

© PressReader. All rights reserved.