Editor's Note

China will officially launch the pilot free trade zone (FTZ) in Shanghai’s Pudong New Area on September 29, according to sources with the Shanghai municipal government on September 24. 

The 28 square-kilometer zone is not only the first in the city, but the first of its kind in the Chinese mainland. This special report discusses why Shanghai was chosen as the site of the trial zone, and the impact the zone will have on the liberalization of capital accounts and the internationalization of the yuan. It also looks at the significance of the zone for different industries and the future of the Chinese economy.

Latest News

Pilot FTZ ready to launch
The highly anticipated China (Shanghai) Pilot Free Trade Zone (FTZ) will be officially launched Sunday. The first on the Chinese mainland, the FTZ is seen as an important step in China's economic reform and the internationalization of the yuan.

China unveils reform details in Shanghai FTZ
China on Friday unveiled the blueprint for its pilot free trade zone (FTZ) in Shanghai with a detailed list of reform tasks, easing restrictions on the yuan, investment and trade to spearhead the nation's future reforms.

Firewall not the issue as trade zone opens
According to a South China Morning Post report, the upcoming Shanghai free trade zone will lift the Internet filter. 

ICBC to open FTZ branch
The Industrial and Commercial Bank of China (ICBC) will open its first branch in the Shanghai Free Trade Zone (FTZ), information portal aastock.com reported Sunday, the first move made by domestic banks before the FTZ opening on October 1.

Free trade zone for Shanghai
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.

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In the zone
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FTZ to test yuan conversion
Markets sputter as FTZ euphoria flares out
Authorities wisely keeping a lid on FTZ ambitions

The Free Trade Zone

What is free trade zone? 

An FTZ is a designated area within which goods are registered but not inspected by customs, allowing a free flow of commodities and services. It can be built within a country or straddle countries to eliminate tariffs and trade barriers. 
Source: sohu.com Graphic: Globaltimes.cn

The Shanghai pilot free trade zone (FTZ)
Map and significance:

	Significance  A crucial move to adapt to global economic and trade development  The largest ever plan for a Chinese free trade zone  Imposes a more proactive opening-up strategy   Paves the way for the country's future growth  Promotes the liberalization of yuan capital accounts

Source: caixin.com Graphic: Global Times

Policy breakthroughs

Source: Global Times Graphic: Globaltimes.cn

Progress timeline 

January	Shanghai official announced plans to set up a pilot free trade zone (FTZ) that would meet international norms in its Pudong New Area, the city's financial and commercial hub, in 2013.
March	Chinese Premier Li Keqiang encouraged Shanghai to experiment with its FTZ.
	Shanghai International Art Trading Center at the Waigaoqiao Free Trade Zone in Pudong area was officially initiated, built especially for the storage, exchange, import and export of art works.
July	A State Council meeting approved the plan to set up a pilot free trade zone in Shanghai.
September	China will officially launch the pilot free trade zone (FTZ) in Shanghai’s Pudong New Area on September 29, according to sources with the Shanghai municipal government on September 24.
Future	The model will be implanted to other regions should this trial be successful in Shanghai.

Chances and Challenges

Chances

Wan Zengwei, director of the Pudong Academy of Reform and Development in Shanghai

With the recent yuan appreciation and declining exports, the Free Trade Zone is a way to force reform, as it will break away from the current foreign exchange supervision, win more institutional dividends to help develop Shanghai into an international economic center, and increase the city's competitiveness in the Asian-Pacific market. 

Source: Shanghai Securities News

Jin Yuying, researcher at the Research Center for the Shanghai Free Trade Zone

The free trade zone is a systematic project that will benefit Shanghai's future development; largely improve the entire industrial structure; illustrate Shanghai's industrial policy and impact the development of China's headquarters economy.

Source: Securities Times

Lin Guolong, director of the Shanghai Maritime University Logistics Research Center

The free trade zone will not only have an important role in the next Trans-Pacific Partnership (TPP ) talks, it will likely help China join the TPP.

Source: Securities Times

Challenges

Sun Lijian, deputy director of the School of Economics at Fudan University

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.

Lu Zhengwei, Shanghai-based chief economist with Industrial Bank

Though the overall principle is attractive, supporting policies are also important. For example, years ago we encouraged enterprises to "go out", but the rigorous approval and screening process ultimately hampered their movement.

Also it is still unclear whether now is the best time to push capital liberalization during the lag in exchange rate. Although reform is never convenient, I still think that capital liberalization should be based on a more flexible exchange rate. 

Source: Securities Times

FTZs In The World

FTZs in China

Source: sohu.com Graphic: Agencies - Globaltimes.cn

FTZs in other nations:

Shannon Free Zone, Ireland  

Originally established in 1959 to develop the local aviation industry with tax incentives for businesses, today about 110 companies in different industries have set up shop in the 2.43 square-kilometer zone, including multinationals such as Intel and GE Capital.

Colon Free Trade Zone, Republic of Panama
The 2.4 square-kilometer Colon Free Trade Zone has been in operation since 1948, with the aim of modernizing the economic service sector in Panama and streamlining regional commerce in Latin America with a comprehensive transportation system such as six airports, five ports, highways and the Panama Canal.

Busan-Jinhae Free Economic Zone, South Korea
The 83.1 square-kilometer zone in Busan was built 10 years ago. By 2020 the zone will be equipped with a new port, industrial parks, business districts, and facilities to serve the international community like schools and hospitals.

Singapore
With only 707 square kilometers of land, the city state boasts nine free trade zones that handle seaborne or airborne cargo such as Brani Terminal and Jurong Port. Good & service tax (GST) exemption for companies is offered within the zones.

Source: Global Times

News Vocab

配套措施 pèitào cuòshī

supplementary/supporting measure

上海口岸将试点建立自贸区相关配套措施。
The Port of Shanghai will establish related supporting measures in its free trade zone on a trial basis.

Web editors: pangqi@globaltimes.com.cn; jinjianyu@globaltimes.com.cn