Shanghai free trade zone to test yuan conversion

Chinese planners are mulling the launch of a free trade zone (FTZ) in Shanghai which will serve as a testing ground for the convertibility of the yuan and the liberalization of the country's capital accounts, the official Shanghai Securities News (SSN) reported Thursday, citing insiders close to the matter.

A raft of plans concerning the proposed FTZ in Shanghai's Pudong New Area have been sent to the State Council and will probably be approved as early as July, the newspaper said.

In the proposal for the FTZ, legal personalities acting on behalf of businesses can enjoy free convertibility of the yuan, while companies can benefit from favorable tax and tariff policies, according to SSN's sources. Individuals will be barred from converting the yuan freely within the zone.

"If the project is approved, it will help overseas investors expand their yuan operations, which will further promote the internationalization of the yuan and enhance Shanghai's status as a global financial center," Zhou Yu, director of the Research Center of International Finance at the Shanghai Academy of Social Sciences, told the Global Times.

Once the zone opens, it will probably be used first to experiment with trade-related offshore yuan products, such as yuan-denominated bonds, loans and insurance, Zhou speculated.

Last Tuesday, Shanghai's deputy mayor Tu Guangshao said the city is accelerating plans for the zone.

In March, Chinese Premier Li Keqiang encouraged Shanghai to experiment with its FTZ.

China launched a special trade zone last year in Qianhai, an area on the western edge of Shenzhen, which allows Hong Kong banks to offer cross-border yuan loans to Chinese mainland companies operating in the zone.

To date, the yuan still lacks full convertibility in Qianhai.