China's plan to set up FTZ in Shanghai may challenge Hong Kong

China's largest metropolis and international business hub Shanghai plans to develop a free trade zone in one of its major commercial areas, posing a direct challenge to free port in commercial centre Hong Kong.
The major driving force is a 10-year plan for Pudong, or the eastern part of Shanghai, that is grander and bolder than anything that has ever been conceived even by overly ambitious Shanghai officials, state-run China Daily reported today.
The plan encompasses an area of 28 square kilometers, including Waigaoqiao Free Trade Zone, Yangshan Free Trade Port Area and Pudong Airport Comprehensive Free Trade Zone. The area is almost the same size as Macao, and its trade volume topped USD 100 billion last year, the highest on the mainland.

In this area, a new economic order will be established with its own set of rules for commerce and finance.
Indeed, the Shanghai free trade zone, as it is temporarily called, is set to have even more of an impact than other such entities in Shenzhen or Tianjin, the report said.
The project, mapped out at the beginning of this year and approved this week, is the first of its kind in China.

Ready for submission to the State Council later this month for the official seal of approval, the project is expected to start operation in phases in the second half of this year at the earliest.

"It is a new national strategy that everything should be secured before the plan really gets started," said Wan Zengwei, director of the Pudong Academy of Reform and Development in Shanghai.
Pudong's attractiveness also include Disneyland project, which is set to be completed by 2015.
Much concern has been expressed that the establishment of the Shanghai free trade zone will pose a threat to Hong Kong.
Wan said Shanghai will not challenge Hong Kong's status as a major global free port, as the latter promises and provides more open policies.
Hong Kong Trade Development Council has been closely monitoring the development of the free trade zone plan.

But Jacky Chung, the council's regional director for eastern and central China, said it is probably not yet time to predict the impact of the plan.
Zheng Weimin, a researcher with the Chinese Academy of Social Sciences, said Shanghai and Hong Kong play different roles in the Chinese economy and their functions are complementary.
Hong Kong's advantages lie in its sound legal system and market openness. Their relationship is more cooperative than competitive.