China launches first FTZ in Shanghai to start wave of reforms

China today launched a major free trade zone in its commercial hub Shanghai as the the world's second-biggest economy braces for the boldest reform move to liberalise regulations on finance, investment and trade.
The Shanghai FTZ, which covers an area of 29 sqaure km in the gleaming metropolis, is seen as a testing ground for the Communist giant's ability to make structural changes and realign its economic model in the face of slowing growth that currently stabilised around 7.5 per cent GDP.
"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, and implement a more active opening-up strategy," Commerce Minister Gao Hucheng said at the launch ceremony.

Making some bold reforms, the government would open up its largely sheltered services sector to foreign competition in the zone and would allow free yuan convertibility under the capital account on a trial basis, the cabinet said on Friday.
China aims to lift the zone, which is expected to pose a stiff competition to international trade hub Hong Kong, up to international standards featuring convenient investment and trade, free exchange of currencies, efficient supervision and a sound legal environment after two to three years of tests.
The FTZ will allow the market to decide prices of financial institutions' assets, or known as the securitisation of those assets, as policy-makers hope to catalyse further reforms in China through such an experiment.

The zone was envisaged to test how it could boost FDI and reignite the slowing down of the world's second largest economy, which expanded 7.7 per cent last year, its slowest pace in 13 years.
Chinese banks, which have already opened their branches in the FTZ, were allowed to conduct offshore business, a move further liberalising financial markets. The banks in the FTZ will be permitted to provide services to depositors resident in other countries.
Shanghai FTZ will also allow eligible foreign financial institutions to set up banks, and team up with qualified domestic banks in joint-ventures. If successful, China plans to extend such hubs in different cities.