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China opens new free-trade zone in Shanghai

The long-anticipated zone, designed to make it easier for foreign firms to do business, is long on promise and short on details.

September 30, 2013|By Barbara Demick
  • Ralph Haupter, corporate vice president of Microsoft, speaks with reporters at a news conference after the inauguration of the new free-trade zone in Shanghai. The 11-square-mile zone is long on promise and short on detail about how it will boost the Chinese economy.
Ralph Haupter, corporate vice president of Microsoft, speaks with reporters… (Carlos Barria / Pool Photo )

SHANGHAI — The Chinese government officially opened a new free-trade zone here that is long on promise and short on detail about how it will boost the economy.

The 11-square-mile zone is in northeast Shanghai in an industrial area near the international airport.

Among other features, the zone is supposed to make it easier for foreign companies to open travel agencies, theaters, banks, brokerage houses and telecommunications firms, sell health insurance or make video game gadgets — businesses that ordinarily are restricted to Chinese companies or joint ventures. In all, 18 industries are to be liberalized.

Economists say the big question is whether companies registered in the free-trade zone can sell to the entire Chinese market — which would be a major opening — or if they are restricted to the zone.

"A number of people are scratching their heads about what this means. The Chinese have been saying they are going to do something bold, but there is precious little detail on exactly what," said Patrick Chovanec, managing director at New York-based Silvercrest Asset Management and an expert on the Chinese economy. He believes that the new Chinese government, in place since March, rushed Sunday's opening of the long-anticipated zone without having finalized the details.

"They were in a hurry to demonstrate that the reform process is moving forward under the new leadership, even though they were not quite ready," Chovanec said.

The idea is to allow China's policy planners to dabble in economic reforms, such as making the Chinese currency fully convertible, freeing up interest rates and easing restrictions on capital flow.

"The zone should function as a test field for reforms and an open economy that would provide experience that can be duplicated and promoted nationwide," said a government statement released Friday.

Commerce Minister Gao Hucheng presided over Sunday's ceremony, suggesting a soft opening because the project's chief architect, reform-minded Premier Li Keqiang, was not there.

Political infighting had reportedly delayed the opening and muted some of the more ambitious economic proposals, such as allowing freely convertible currency.

Early reports said unrestricted Internet access would be allowed, including banned sites such as Facebook and Twitter, but the government announcement Friday clearly stated that there would be no special rules for Internet use.

Although the Shanghai experiment is billed as the first of its kind, China has dozens of economic zones that offer breaks from regulations and taxes. The best known was the Shenzhen zone, inaugurated in 1978 by Deng Xiaoping as a prelude to China's dramatic opening to the global economy.

From a business standpoint, potentially the most exciting aspect of the Shanghai zone is that it could ease conditions for foreign companies that have long complained of the difficulty of operating in China.

"The highlight of the Shanghai FTZ is that it is an open platform where foreign and Chinese companies can compete on a level playing field," Citibank economist Shen Minggao was quoted by state media as saying.

barbara.demick@latimes.com

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