China launches free trade zone in Shanghai

SHANGHAI - Agence France-Presse

A man collects information at the newly opened Shanghai Free Trade Zone. REUTERS photo

China launched yesterday a major free trade zone (FTZ) seen as a testing ground for long-awaited market reforms in the world’s second largest economy.

Commerce Minister Gao Hucheng attended the opening ceremony for the zone, which covers 29 square kilometers in the country’s commercial hub Shanghai.

Reforms in the zone will be closely-watched as a test of China’s ability to make structural changes as it tries to realign its economic model in the face of slowing growth.

“The establishment of the Shanghai FTZ is a significant move for China to conform to new trends in the global economy and trade, and implement a more active opening-up strategy,” Gao said in a statement. The government will allow free yuan convertibility under the capital account on a trial basis, according to a statement released by the State Council (cabinet) on Sept. 27. Market-set interest rates, seen by analysts as a key reform for China’s economy, will also be trialed, according to the statement.

Restrictions on foreign investment will be eased inside the area, which will also loosen controls on 18 service sectors ranging from finance and shipping to cultural services. Several financial firms including US-based Citibank, and China’s “big four” state-owned banks, will open branches in the zone, according to the Oriental Morning Post. International firms including Microsoft and Porsche are involved in investment projects there, the newspaper said.

Excitement at the launch has boosted stocks of Shanghai-based firms and spurred a rally in home prices and land costs in areas bordering the zone in the past few weeks, state media has reported.

Unlike with previous special economic zones launched by China’s government, the emphasis in the Shanghai FTZ on the service sector, rather than export-oriented manufacturing, has been welcomed by economists. The government has been struggling to shift the domestic economy away from dependence on big-ticket investments and exports, and more towards consumer demand, as the key growth engine.