Exploration and Practice in the Shanghai FTZ

The People’s Bank of China (PBC) supports the zone’s institutional building of interest rate liberalization and capital market openness. Last year, PBC published its Opinions on Financial Measures to Support the China (Shanghai) Pilot Free Trade Zone, proposing 30 detailed rules and regulations with respect to the zone’s financial reform. It included institutional innovations in major fields to facilitate exchange for investment and financing, promoting RMB cross-border transactions, advancing market-based interest rate reform, and deepening foreign exchange administration reform. In May 2014, PBC Shanghai Head Office released the Implementing Rules of the China (Shanghai) Pilot Free Trade Zone for Separate Accounting Business (for Trial Implementation) and the Rules of the China (Shanghai) Pilot Free Trade Zone for the Prudential Management of Risks Relating to Separate Accounting Business (for Trial Implementation). This has promoted development of the zone’s financial industry.

Proper Handling of Short-term Effect and Long-term Construction

Constant improvements are necessary for the construction of the zone’s various systems and measures. Authorized by the National People’s Congress, the State Council in December 2013 decided to make temporary adjustments to a dozen administrative regulations and approvals in the field of investments, and to eight service industry administrative regulations and approvals. More than 10 ministries, including the Ministry of Finance and the Ministry of Transport, have since promulgated relevant documents to support the zone’s construction.

Nevertheless, there are several noteworthy issues to address on the FTZ. First, its emphasis should be placed not on preferential policies, but rather on effective institutional improvements. The obvious profit potential of FTZs has made many localities eager to build them. Prices of factors such as FTZ-related real estate have risen sharply, so greatly reducing the development space for manufacturing and service industries. Second, the zone’s pace of reform and opening-up needs to be stepped up and to extend beyond the immediate vicinity, so giving full play to the spirit of entrepreneurship and innovation. Emphasis on short-term achievements is inadvisable; it should rather be on a system that fits the China Model and that is applicable nationwide. Third, society as a whole should be more positive, encouraging, and supportive of FTZ construction. Appropriate handling of the relationship between short-term effect and long-term construction, and completing the strategic layout, development planning, and institutional assessment of FTZs in China is imperative. FTZ construction throughout the world is not, after all, accomplished in one action, but through a specific process.

Hu Jiangyun is a researcher at the Development Research Center of the State Council.