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Shanghai Free Trade Zone Plans Unveiled


It is being called one of the most significant moves since Deng Xiaoping created the Shenzhen special economic zone in 1980s: on Friday, China unveiled its plans for a Shanghai free trade zone. A small sub-section of the metropolis, 28 square kilometers, has been marked off as an area where restrictions on foreign investment will be eased and where the yuan will be freely traded. Some eighteen sectors, from finance to shipping, will be eligible to participate in the economic experiment.

It’s far from a sure bet that China will pull this off without a hitch. There had been an increase in investor interest during the run-up to the unveiling, with stocks of companies likely to benefit surging by more than 30 percent in recent weeks. But these gains were attenuated on Friday, when stocks tumbled by the maximum allowed 10 percent as investors pondered what kind of loopholes the government had built in for itself in the vaguely worded implementation plan.

Lu Ting, an economist with Bank of America Merrill Lynch interviewed by the FT, provided some context to investors’ caution:

“My overall impression is that it’s good but people should avoid being overly excited,” he said. “Some of the further liberalisations are maybe not so practical. These are very good concepts and people wish to see them happen. But in practice it’s not so easy. It’s not like trade. Finance is invisible and it flows at a very fast pace. It can flow in and out of the zone really easily.”

Balancing is hard, and the Chinese communists seem to be taking a very cautious approach to these reforms. But with economic recovery and sustained robust growth still very much an open question, taking steps like these may be unavoidable. This is one of the more important China stories to watch.

[Shanghai photo courtesy Shutterstock.]

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  • lukelea

    For suckers

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