THE NEXT BIG THING
workshop of the world.
The new generation of development zones — starting with the much-heralded Shanghai one in 2013 — are intended to propel China to its next phase of development.
Shanghai itself has come into some criticism for not being quite the laboratory for financial reform it was originally intended to be.
Businesses within the zone, however, have more freedom to make foreign currency exchange transactions and capital account settlements than in the rest of China.
The zone has also been operating at a time when there was pressure on the Chinese currency after a reform of the exchange rate mechanism in August 2015, which has since seen an imposition of stricter capital controls across the whole country.
Wu Jiangang, research fellow at the Lujiazui International Finance Research Center at CEIBS in Shanghai, believes some of the criticism is unfair.
“Perhaps the steps are not so big, but steps have been taken; there has been some good practice and it has so far been a worthwhile experiment,” he says.
“We cannot just open the capital account, particularly when there have been pressures on the yuan over the past two years.”
Edward Tse, founder and CEO of management consultants Gao Feng Advisory, believes the government is right to continue with the model and roll out new FTZs this year.
“The Chinese government has done this really well over the past few decades. They have experimented with policy by launching these pilots, and it has been a model for Chinese development. It is a smart idea, and I think it is a good philosophy.”
Wu at CEIBS believes FTZs provide a solution for China because it would be difficult to experiment with policy on a national level.
“China is a very big country and therefore it is more difficult to reform. It is also not like the United States, where every state has its own laws. China’s provinces operate under national laws and regulations,” he says.
“The FTZs give China the opportunity to develop innovative policies and see if they work in practice.”
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