China (Shanghai) Pilot Free Trade Zone – SPFTZ (simplified Chinese 中国（上海）自由贸易试验区) is a free trade zone backed by Chinese Prime Minister Li Keqiang, officially approved on August 17th 2013, and effective since September 29th 2013.
The pilot covers an area of approximately 29 square kilometers including three special economic zones: the Shanghai Free Trade Zone, the Pudong Airport Free Trade Zone, and the Yangshan Free Trade Port Area.
The official mission of this zone is “to promote reform and opening-up under the new situation and undertake a major task to explore new ways and accumulate new experience for deepening of reform and opening up in an all-round way ”.
In a nutshell, the main (highly inter-connected) objectives of this new zone are:
- Building a market environment of equal access for domestic and foreign enterprises;
- Improving legal safeguard mechanisms;
- Expanding new development patterns of trade;
- Opening up fresh realms of trade in service.
Yet there are some 1,000+ activities listed in the so called “Negative List”, which are not granted approval for implementation inside the area, as for example unlimited access to internet e.g. uncensored net.
The main enrollment steps under SPFTZ follow:
Given the already strong competitiveness of China in the trade of manufacturing, most of the critics focus their attention on the opening up of the service sector, with a particular focus on the financial side.
In fact, it is debated whether this pilot zone is an attempt to foster the mainland competitiveness of the financial services sector. Today, it is not uncommon for trading companies to have an administrative office in Hong Kong; the adoption of this mechanism derives from the dispute between a trustworthy and developed Hong Kong financial system against a developing and controlled Chinese (Shanghai) financial system.
The non- convertibility of the yuan is one of the obstacles limiting Shanghai’s competition in the global financial markets.
Therefore, the zone represents a testing ground for pilot initiatives, which could subsequently be extended to other areas in China.
In fact, the Administrations of other major first and second tier cities have started lobbying Beijing Central Government for permission to set up their own free trade zones; these provinces include among others, Chengdu, Guangzhou, Hangzhou, Qingdao, Tianjin, Wuhan, and Zhejiang.
Today, Shanghai still remains the only reality operating a free trade zone under its own control.
Summing up, it can be said that the free trade zone approach represents an important step forward, towards the achievement of a full market-based economy in the future.
Global financial institutions, multinational corporations, and smaller market players have positively accepted the launch of the zone by opening administrative offices and branches in one of the territories included.
This means that the Shanghai Administration can count on the support of market players such as banks, and companies: an ongoing dialog between these players could positively foster the development of this initiative.
Although reforms in the Shanghai Free Trade Zone have been implemented, the pace of introduction is still too slow, and the Negative List poses some threats to the credibility and transparency. One of the hoped-for outcomes of this pilot is that of improving and perfecting a legal system that is often seen as inefficient and arbitrary.
The future of this experiment could be really interesting because it could change the way business is done in Shanghai and consequently in other parts of China. The hope is that new tests would be periodically implemented fostering foreign investment and allowing market players to be able to predict regulations.