- POSTED: 27 Sep 2013 20:43
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China has liberalised more sectors for foreign investors and relaxed rules for overseas banks to operate in the highly anticipated Shanghai Free Trade Zone. However the new territory, which is seen as a testing ground for financial reforms, may not live up to its hype.
SHANGHAI: The Shanghai Free Trade Zone is a 29 square kilometre area made up of four existing free trade zones in Pudong Airport, Yangshan Port and Waigaoqiao Logistics Park.
Concessions to foreign investors intending to operate in the zone include the freedom to set up hospitals, and provide medical insurance -- two sectors previously limited to Chinese firms or joint ventures.
Domestic lenders will also be allowed to handle offshore banking -- this measure of currency liberalisation fell short of the expectations of some analysts, with the government preferring to maintain some level of protection for exporters.
Ding Jianping, an academic with the Shanghai University of Finance and Economics, said: "Once we have open rates, it will impact on onshore enterprises. China's competitiveness is closely affected by exchange rates, especially in exports. How will local importers exporters be affected? That's our concern."
Still, initial hype surrounding the FTZ has caused home prices nearby to soar by about 30 per cent since August.
Looking ahead however, the new zone is expected to raise Shanghai's total trade to 150 per cent of the city's GDP in the first two years, up from 137 per cent in 2012.
More jobs are expected to be created for China's growing number of university graduates in the coming years as multinationals move in, enticed by tax benefits.
Observers said the FTZ is a move in a new direction by China to re-develop the Eastern coastal areas as part of its larger economic reforms to boost domestic consumption.
Professor Feng Jin from Fudan University's School of Economics, said: "The previous strategy to develop the Central West in the past decade has not managed to close the gap. Graduates are still unwilling to go over -- so that has not worked. In reconsidering the strategy for even distribution, we can draw out the population to narrow the differences."
The zone is not exactly as free as previously speculated -- foreign websites like Twitter and Facebook are still blocked but the draft overseeing the zone said companies can seek approval from the State Council to offer services that currently breaks Chinese law.
For now and the near future, the direct beneficiaries of the FTZ would be companies specialising in trade and speculative investors who had reaped profits from buying into related stocks, which gained some 130 per cent in the past month.