Teaching Comparative Government and Politics

Thursday, October 03, 2013

Another Chinese economic laboratory

Thirty years ago, China created a Special Economic Zone adjacent to Hong Kong. It was meant to be a walled-off laboratory for economic experimentation. It was successful enough that other SEZs were established in other Chinese cities.

Now comes the Shanghai Free Trade Zone. More experimentation in a limited area. It seems unlikely that the experiments will be confined this time either.

Shanghai free-trade zone launched

A free-trade zone in Shanghai, China's economic hub, has been launched as the world's second-biggest economy prepares to test long-awaited economic reforms…

The sign reads "China (Shanghai) Pilot Free Trade Zone"

Commerce Minister Gao Hucheng… said the zone would help "implement a more active opening-up strategy".

Restrictions on foreign investment will be eased inside the area and interest rates will be set by markets.

Among other measures to be trialled inside the zone are allowing China's heavily-regulated currency, the yuan, to be swapped freely for other currencies…

"The establishment of the Shanghai free-trade zone is a significant move for China to conform to new trends in the global economy and trade," Mr Gao said.

The new zone "shows that the new government is keen on making reforms", said Stefan Sack of the European Chamber of Commerce in China but he added that "a free-trade zone in Shanghai alone will not change how business is done in China"…

Shanghai FTZ a fresh commitment to reform

The Chinese government officially inaugurated the Shanghai pilot free trade zone (FTZ) on Sunday with a desire to nurture changes through experiments in a wide range of areas.

Testing of a convertible yuan [and] wider opening of 18 service sectors… are expected to unleash economic potential in the 29-square-km zone in the coming two to three years.

After trial operation, the successful experiences will be applied in other parts of China and help escalate the Chinese economy to a new level in the face of a slowing domestic economy, according to government officials and experts…

The key to developing the Shanghai FTZ is that more attention should be given to institutional establishment that could be replicated nationwide, rather than implementing favorable policies at local levels…

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