Experts acknowledge FTZ successes after first year

Illustration: Chen Xia/GT

Successful policies could benefit other cities

Monday marks the first anniversary of the establishment of the China (Shanghai) Pilot Free Trade Zone (FTZ), an experimental zone which has eased restrictions on foreign investment and promoted financial opening-up. The Global Times interviewed three experts to get their views on the zone after its first year, as well as possible plans to expand the preferential policies within the zone to other regions in China.

Yeung Sing-keung, managing director of Geodis Wilson Shanghai Limited

It now takes less time for our goods to pass through customs since the FTZ was established in Shanghai last year. This is a shared benefit that nearly all multinational companies in the FTZ can now enjoy.

As for Geodis, it now takes one or two days less to get our goods through Chinese customs, which reduces costs by 15-20 percent. Before the relevant free trade policies were implemented, a slower customs checking procedure meant we had to pay more to store our goods at the harbor.

So far, we have established three warehouses at the free trade port area in Yangshan and we have seen 50 percent growth in our logistics business over the past year.

We hope some favorable policies can be applied to other major harbors in China as soon as possible. As for now, the FTZ in Shanghai covers the main part of our business in East and Central China. If successful pilot policies could expand to Tianjin, we could save even more on transport and manpower and thus enhance our labor efficiency.

Fu Weigang, executive director of the Shanghai Institute of Finance and Law

Several important breakthroughs have been made at the Shanghai FTZ. First, the zone's negative list clearly defines the areas which are off-limits to foreign investors. Second, the zone's simple and efficient registration system is another important tool to facilitate businesses. Based on early experiences, these tools could be expanded nationwide in the future.

The FTZ has also relaxed restrictions on capital flows. Individuals and groups based in the zone can invest more freely overseas without being restricted by policies enforced elsewhere.

There are still some aspects of the FTZ that could be improved. To begin with, the government should further shorten its "negative list" to give enterprises room to engage in more fields.

FTZ authorities should also cooperate closely with the central government to implement more reforms aimed at liberalizing yuan loans and China's capital account. These and other reforms must be made in accordance with existing Chinese laws.

In addition, more should be done in the zone to steer foreign capital flows into China. Easy credit policies overseas can help Chinese enterprises reduce their financing costs. This could also force Chinese institutions to adjust their own interest rates to remain competitive. In the meantime though, the government should also strengthen supervision to prevent excessive hot money inflows from damaging the Chinese economy.

Ding Jianping, director of the Research Center for Modern Finance at Shanghai University of Finance and Economics

A simplified registration and approval system has helped facilitate the establishment and operations of enterprises in the FTZ.

The zone has also been the site of many financial sector achievements over the past year as well. To begin with, two-way yuan flow policies mean that companies in the zone can now directly transfer renminbi in offshore accounts to a capital pool in the FTZ. Overseas foreign exchange deposits can also be exchanged into renminbi and then transferred into this pool. In the past, companies based in China often faced difficulties bringing offshore funds back onshore.

Moreover, the Shanghai Gold Exchange has launched an international board in the FTZ, and authorities are preparing to establish a bulk commodities trading platform in the zone as well.

Strict supervision policies in the zone have also helped stamp out interest rate arbitrage. Overseas credit costs are lower than in the domestic market. If offshore hot money flows into the zone unabated, it could soon spread into the wider economy and wreck havoc on the Chinese financial system.

Still, the FTZ can be improved if more capital reaches the test zone. FTZ officials should consider the preferences and demands of multinational corporations and domestic private enterprise and craft policies that encourage these businesses to base their financial operations in the FTZ. By bringing more capital into the pilot zone, Shanghai's FTZ can move to the forefront of China's financial sector.

Other local governments in China can learn much from the early example set by Shanghai's FTZ. But simple imitation and duplication of the zone's policies won't ensure success elsewhere. Other localities interested in creating pilot zones similar to the one found in Shanghai should first improve their own supervision capabilities and create resources that can facilitate enterprise growth.