A good score card for the Shang­hai FTZ

China Daily (Canada) - - SHANGHAI -

The State Coun­cil’s de­ci­sion to ap­prove the ex­pan­sion of the China (Shang­hai) Pi­lot Free Trade Zone (FTZ) on Dec 28, 2014 — by in­cor­po­rat­ing Lu­ji­azui Fi­nan­cial Area, Jin­qiao Ex­port Pro­cess­ing Zone, and Zhangjiang High Tech Park — can be seen as a sign of steady progress achieved by the Zone. The FTZ now has a greater ca­pac­ity for re­form tri­als and has the ca­pa­bil­ity to speed up the com­pre­hen­sive de­vel­op­ment of the space in the long-term.

Now into its sec­ond year of oper­a­tions, the FTZ will no doubt con­tinue to cover new ground. In the past year, the re­forms in­tro­duced have al­lowed the Zone to meet the global stan­dard of eco­nomic and trade co­op­er­a­tion, gain a break­through on cer­tain un­rea­son­able re­stric­tions and es­tab­lish new eco­nomic re­lated reg­u­la­tions.

Re­forms in the FTZ have been mainly geared to­ward four ar­eas — the trans­for­ma­tion of gov­ern­ment func­tions, sim­pli­fied for­eign trade su­per­vi­sion pro­ce­dures and in­no­va­tive trade meth­ods, open­ing-up of the fi­nan­cial sys­tem, and stan­dard­ized reg­u­la­tions.

The FTZ has pos­i­tively trans­formed gov­ern­ment func­tions by re­leas­ing an ad­min­is­tra­tive rights list and ad­min­is­tra­tive re­spon­si­bil­i­ties list, while the su­per­vi­sion method has also been changed from the prior ap­proval sys­tem to a more ef­fi­cient post-fil­ing sys­tem. The launch of these two ad­min­is­tra­tive lists have helped pre­vent pos­si­ble rent-seek­ing and over-in­ter­ven­tion of the gov­ern­ment in the mar­ket.

The dozens of mea­sures that have been im­ple­mented by Shang­hai Cus­toms to sim­plify the cus­toms clear­ance process and im­prove ef­fi­ciency in the Zone has been one of the most no­table achieve­ments by the FTZ, which is cer­tainly grow­ing in stature in the in­ter­na­tional trade scene. Since the launch of the new fast track pol­icy, it now only takes six hours for im­ported fresh fruits to pass the cus­toms clear­ance checks be­fore en­ter­ing the do­mes­tic mar­ket.

The pi­lot pro­ject within the FTZ to open up the ser­vice trade has also been another com­mend­able ef­fort. With the ar­rivals of Ger­man healthcare op­er­a­tor and med­i­cal prod­uct provider Artemed Group and e-com­merce gi­ant Ama­zon. com Inc in the Zone, lo­cal ser­vice-ori­ented en­ter­prises now have world stan­dard role mod­els to learn from. This can also greatly help do­mes­tic com­pa­nies to adapt to fu­ture com­pe­ti­tion.

Fi­nan­cial re­form has ob­vi­ously been the top pri­or­ity in the FTZ, see­ing how it has im­ple­mented a se­ries of mea­sures such as al­low­ing cross-bor­der ren­minbi pay­ment for e-com­merce com­pa­nies, man­ag­ing cross-bor­der ren­minbi cash pool­ing, eas­ing cross-bor­der in­vest­ment and fundrais­ing, and in­tro­duc­ing the lib­er­al­iza­tion of in­ter­est rates for the sav­ing de­posits of small amounts of for­eign cur­ren­cies and large amounts of ren­minbi.

Among these mea­sures, I be­lieve the one that the fi­nan­cial mar­kets are most ea­ger about would be the launch of the free trade ac­count­ing unit (FTU), which lays out the sys­temic ar­range­ment for the free trade ac­count, en­abling cap­i­tals to move be­tween the FTZ and off­shore des­ti­na­tions with less re­stric­tions. Since its trial oper­a­tions on May 22, 2014 till the end of the year, nearly 10,000 en­ter­prises have set up their FTU ac­counts and agreed on the off­shore use of 19.7 bil­lion yuan with an av­er­age re­fi­nanc­ing rate of 4.2 per­cent, much lower than the fi­nanc­ing costs in do­mes­tic fi­nan­cial mar­ket.

The fur­ther re­lax­ing of rules re­gard­ing the FTU, es­tab­lished on Feb 12, al­lows qual­i­fied en­ter­prises in the Zone to ap­ply the ac­counts for di­rect over­seas in­vest­ments and loan lend­ing or bor­row­ing with higher lever­aged rates for both ren­minbi and for­eign cur­ren­cies. This will fur­ther boost in­no­va­tive in­vest­ment and fi­nanc­ing and con­tinue to aid de­vel­op­ment in the Zone.

The neg­a­tive lists, which have been re­vised and short­ened three times within the past two years, is also a good at­tempt by the gov­ern­ment to dis­play their will­ing­ness to be trans­par­ent. This move has been met with pos­i­tive re­ac­tions from for­eign in­vestors that ben­e­fit from the con­ve­nience it af­fords on for­eign cap­i­tal man­age­ment.

As the pi­o­neer and ex­plorer of the mod­ern mar­ket econ­omy sys­tem in China, the im­pact of the FTZ is cer­tainly not lim­ited to just the 120 square kilo­me­ters it is lo­cated within, but to the whole na­tion. It will be an in­te­gral part in lead­ing China to suc­cess­ful eco­nomic re­form.

The au­thor is the ex­ec­u­tive di­rec­tor of the Re­search Cen­ter on FTZ.

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