The rollout of the Chinese mainland's first free trade zone, to be centered in Shanghai, was approved by the State Council on Wednesday, marking a new step in the country's reform process.
The zone, to be established on a trial basis, will consist of four separate bonded zones under the special administration of customs, including the already in place Waigaoqiao Free Trade Zone and the Pudong International Airport Comprehensive Free Trade Zone, said an announcement released by the State Council.
The building of the free trade zone in Shanghai is compliant with global development trends and marks a big step forward in the nation's opening-up, it added.
This is the largest ever plan for a Chinese free trade zone, but so far does not include details of the time frame or further information about how the zone will be constructed.
"The top priority will be innovation in the financial sector. This includes marketizing the exchange rates and the interest rates, opening-up of the financial industry and offering offshore financial services," Xu Quan, a deputy director of the Shanghai Financial Services Office, was quoted by the Xinhua News Agency as saying in late June.
Experts reached by the Global Times on Wednesday stated that the zone, which illustrates the authorities' determination to push forward further opening-up, paves the way for the country's future growth and further promotes the liberalization of yuan capital accounts.
He Weiwen, co-director of the China-US-EU Study Center under the China Association of International Trade, told the Global Times that the zone is strategically important to the further opening-up of China's market and the reconstruction of the country's industrial structure, adding that new industries emerging from the restructuring currently lack drive without competition, which the Shanghai zone will help correct.
"The most important impact of the newly launched zone is to stretch out offshore yuan business on the mainland," Zhou Yu, director of the Research Center of International Finance at the Shanghai Academy of Social Sciences, told the Global Times Wednesday, adding that it is natural for overseas investors to settle their trading in offshore yuan, in the form of yuan-denominated investment and fundraising.
"This, from another perspective, will help fortify Shanghai's position as an international financial center," Zhou remarked. "This will force profound reform that China has failed to carry out for decades due to blocks from interest groups."
"The zone will also play a positive role in promoting the yuan's international recognition and liberalizing China's capital accounts as overseas business participants can freely convert the yuan to other currencies in the zone," said Sun Lijian, deputy director of the School of Economics at Fudan University. However, chances are that global hot money will find it much easier to flow in and out for interest arbitrage, hitting the real economy and the capital market, Sun noted.
The State Council announcement called attention to potential associated risks.
"The model will be implanted to other regions should this trial be successful in Shanghai," Zhou said, echoed by Sun, who said unleashing capital in one region means setting it free across the nation.
A brigade of cities, including Chongqing, Zhoushan New District in Zhejiang Province and Binhai New Area in Tianjin, have also filed their applications for trial free trade zones.
The free trade zone is unlike any of the previous trials relying on preferential policies, and Shanghai should focus on deeper reforms in governance, while in the meantime, energy, telecommunications and finance sectors that badly need to be opened up will also see changes, said He.
"China will first dip its toes into the water in Shanghai and slowly expand this to other regions," He said.
Liu Linlin, Wang Jiamei and Qiu Chen contributed to this story