China’s new free-trade zones aim to compete with Hong Kong

Following the establishment of Shanghai's free-trade zone in September, FTZs are all the rage in China and the central government has given the go-ahead to 12 around the country to explore setting up their own projects.

The Chinese government believes non-convertibility of the yuan is the main obstacle stopping Shanghai from competing with global financial centres such as Hong Kong, London and New York. So the aim of the FTZs is to harness market forces and push trade and investment reforms.

China's first free-trade zone was launched in Shanghai in late September, aimed at allowing the yuan currency to be convertible on the capital account for investment and financial transactions.

Social media
The FTZs also promised to provide a liberal environment to lure overseas talent, which would include unrestrained internet access to Facebook and Twitter without the need to use a Virtual Private Network (VPN) for example and international schooling. While all of this looks good on paper, making the projects a success has proved more difficult than it seems, and Shanghai remains a long way away from being as appealing as Hong Kong as a place to do business.

Foreign investors remain sceptical about the project in Shanghai because there is a rake of regulatory hurdles to setting up in the city. Shanghai mayor Yang Xiong has promised to make the 28.28sq km FTZ more open.

"All the city's strength and resources must be fully utilised to ensure the successful running of the zone, because it is an important national strategy," Yang told the city's annual parliamentary meeting this month, quoted by the South China Morning Post. "We will seek substantial progress with pilot reforms."

The Xinhua news agency reports that the State Council, or cabinet, has greenlit Tianjin municipality and Guangdong province to start examining projects, while other regions that have expressed an interest in setting up FTZs include Zhejiang, Shandong, Liaoning, Henan, Fujian, Sichuan, Guangxi and Yunnan, and cities including Suzhou, Wuxi and Hefei.

It’s not a speedy process. The government will conduct joint surveys by the different ministries and the process will take about a year.

Head of a research institute with the Commerce Ministry Huo Jianguo said the emerging FTZs could be testing grounds for policies to open up the economy further.