By: Sean Oh
The Shanghai FTZ, a Step Towards Capitalism
First established on September 29, 2013, Shanghai’s Free Trade Zone (FTZ) is a social and economic experiment that allows Free trade within a certain area and has been deemed “An Experiment in Success”. Despite the initial shroud of skepticism and anxiety over the issue, the zone has expanded in both size and significance in only four years. The area has grown from its original 28.78 sq. km to its current 120.72 sq. km and has produced approximately 75 percent of GDP for Pudong New Area, the region in which the zone is situated. Furthermore, more than 60,000 free trade accounts are currently being operated there, of which 40,000 are newly registered companies, speaking volumes of the zone’s rapid growth. Despite its growing significance and economic impact, many are unaware of its fundamental policies and basis of its creation.
The Shanghai Free Trade Zone was fundamentally based upon four pillars of economic and social reform: trade, investment, finance, and administrative government.
Trade liberalization was implemented to “achieve free imports, storage, re-exports, processing and manufacturing of goods” within the geographical limits of the zone to ultimately expand and develop Shanghai’s influence in relevant sectors. This allowed industrialists and entrepreneurs much freedom within the boundaries of China, an increasingly attractive hotspot with its abundant resources and capital. By using its resources for international shipping, port management, and etc., the FTZ would enhance Shanghai’s influence as a free trade port, appealing to further foreign investment and serving as a catalyst for economic growth.
Investment was encouraged by the implementation of the negative-list approach and by adopting pre-establishment national treatment which allowed all sectors, excluding those explicitly banned by the law, to be opened up and foreign investors to be subject to a filing system rather than looming Chinese administration respectively. This allowed further freedom for foreign investors and served as yet another appeal to attract them into showing interest to the region.
Financial Reform was fundamentally drafted to ease the obstacles in the financial sectors in regard to the construction of the FTZ. It internationalized the Renminbi and accumulated experience for nationwide financial reform, ultimately leaving the option to develop into a paradoxical offshore financial sector onshore.
Among the four pillars, an administrative government seems to be the most essential as it is required to redefine the relationship between the government and market. Starting such a global experiment required much overseas interest and investment which was encouraged through an administrative government by preventing monopolization, endorsing the above-mentioned negative-list approach, and excluding the area from protectionist foreign investment laws.
As an economic and social experiment, the Shanghai FTZ has shown great strides and has encouraged the Chinese government to further its growth and implement its policies on regions elsewhere. It was also novel in its venture into the idea of a “free market” and stood in great contrast to its legacy of protectionism. Including the Shanghai FTZ, there currently exists 11 Free Trade Zone and continued support of the system seem to be on China’s political agenda.
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Shi, J. (2017, June 21). Shanghai FTZ proves model for success. Retrieved October 17, 2017, from http://www.chinadaily.com.cn/business/2017-06/21/content_29824220.htm
Zhu, H., Ng, G., & Jiang, L. (n.d.). China: highlights of the Shanghai Free Trade Zone. Retrieved October 14, 2017, from https://www.jpmorgan.com/cm/BlobServer/China_Highlights_of_the_Shanghai_Free_Trade_Zone.pdf?blobkey=id&blobwhere=1320623477943&blobheader=application/pdf&blobheadername1=Cache-Control&blobheadervalue1=private&blobcol=urldata&blobtable=MungoBlobs