Zone signals fresh re­forms

China Daily (Hong Kong) - - COMMENT - ED­I­TO­RI­ALS

THE GOVERN­MENT’S DE­CI­SION TO SET UP A free trade zone in Shang­hai, to­gether with the range of other sys­tem­atic ar­range­ments it has re­cently in­tro­duced, marks an­other mile­stone in its re­form and open­ing-up drive.

That drive, ini­ti­ated more than three decades ago, has suc­cess­fully un­leashed the growth po­ten­tial of the world’s most pop­u­lous coun­try, help­ing China shake off the plague of poverty and mak­ing it the sec­ond-largest econ­omy in the world.

How­ever as its growth slows, amid its eco­nomic re­struc­tur­ing and the chang­ing in­ter­na­tional eco­nomic land­scape, the govern­ment ur­gently needs to re­new its ef­forts to at­tract global cap­i­tal and lay the ground­work for fu­ture sus­tain­able growth.

Last year, for­eign di­rect in­vest­ment flow­ing into China dropped by 3.7 per­cent year-on-year, the first fall since 2009. Al­though it has re­bounded strongly in the past two months, it re­mains un­clear whether this is a tem­po­rary reaction to signs of im­proved fun­da­men­tals in China or an en­trenched long-term trend.

It is there­fore cru­cial that the govern­ment takes the ini­tia­tive to re­form the coun­try’s fi­nan­cial regime to tap new man­age­ment meth­ods and make it more ac­com­moda­tive to for­eign cap­i­tal.

Such ef­forts started last year when the govern­ment es­tab­lished a free trade zone in Shen­zhen’s Qian­hai area. Hong Kong banks are now al­lowed to of­fer cross-bor­der yuan-de­nom­i­nated loans to main­land com­pa­nies in the zone, a step fur­ther to in­ter­na­tion­al­iza­tion of the Chi­nese cur­rency.

The govern­ment has also es­tab­lished a mech­a­nism this month, in which ma­jor min­istries over­see­ing fi­nan­cial mat­ters, such as the cen­tral bank, the bank­ing reg­u­la­tor, the se­cu­ri­ties reg­u­la­tory com­mis­sion and the for­eign ex­change ad­min­is­tra­tion, will join hands to bet­ter reg­u­late the fi­nan­cial sec­tor.

While it is a nec­es­sary step to han­dle po­ten­tial risks aris­ing from the op­er­a­tion of bank­ing, se­cu­ri­ties, in­sur­ance and var­i­ous de­riv­a­tive busi­ness forms, uni­fy­ing the fi­nan­cial reg­u­la­tions is also a must as the coun­try be­comes more in­te­grated into the global fi­nan­cial regime.

The Shang­hai free trade zone will mark a new high in China’s fi­nan­cial re­form and open­ing-up as bolder steps, such as full yuan con­vert­ibil­ity and freer cap­i­tal flow across bor­ders, will be car­ried out with fi­nan­cial lib­er­al­iza­tion.

When suc­cess­ful, the un­prece­dented pro­gram will see more lib­er­al­ized fi­nan­cial reg­u­la­tions and, as those re­form mea­sures are spread to more ar­eas, pro­vide a sys­tem­atic backup for the Chi­nese econ­omy.

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