Home' Trinidad and Tobago Guardian : October 10th 2013 Contents BG30 | THE ECONOMIST
BUSINESS GUARDIAN www.guardian.co.tt OCTOBER 2013 • WEEK TWO
I FOR SALE
or weeks businessmen have
speculated wildly about the
Shanghai Free Trade Zone. This
showpiece policy is meant to
kick-start a broader Chinese
reform agenda, due to be presented after a
big Communist Party meeting in November.
Despite its name, it is more of a special
enterprise zone on the outskirts of China s
commercial capital. Prime Minister Li
Keqiang has personally championed the
At last, on September 29, the zone was
launched. Leaders called it a landmark
moment, similar to the creation of the Shen-
zhen special economic zone near Hong Kong
that, more than three decades ago, ushered
in reforms and spectacular growth. At a
press conference officials used the word
"innovation" 43 times.
Despite the gushing, the launch was a
letdown. Hardly any senior government fig-
ures turned up. The plan will not include
several hoped-for reforms: access to the
uncensored Internet, cuts in corporate tax
and permission for foreign auctioneers to
sell antiquities. More troubling is that few
details were given at all.
"Show me the beef," exclaims Joerg Wut-
tke, a former head of the European Union
Chamber of Commerce in Beijing.
He had been enthusiastic, he says, but
he now fears that officials have grown timid.
Such concerns were hardly allayed when
the authorities released a "negative list" of
sectors in which foreigners cannot invest in
the zone. In theory a short list---banning
guns, drugs and pornography, perhaps---
would be investor-friendly. In fact, the SFTZ s negative
list contains more than 1,000 banned areas. Local
officials insist that it will be pared down, but one
foreign lawyer grumbles that Chinese officials are
simply "addicted to control."
Given these uncertainties, it is reasonable to ask
whether the ballyhooed SFTZ can really become the
next Shenzhen. The surprising answer from many
experts is a cautious maybe.
"Do not be fooled by the early caution," says Chen
Bo of the Shanghai University of Finance and Eco-
nomics, who has advised the government on the
SFTZ. "We remain very ambitious."
Chen believes that internal and external factors
are forcing a change in China s economic model.
At home, soaring wages and an aging work force
are pushing China toward the ""middle-income trap."
Abroad, rivals are rushing into regional free-trade
deals, such as the Trans-Pacific Partnership, that
will pry open economies.
"China is feeling pressure to up its competitive
game," says Kenneth Jarrett, head of the American
Chamber of Commerce in Shanghai.
To keep up, many analysts argue, China must lib-
eralize. Because its manufacturing is already com-
petitive, that means opening up the inefficient, cos-
seted services sector, especially finance. This is where
the SFTZ comes in. Services have risen from only
half of Shanghai s GDP in 2003 to 62 per cent this
year. In Hong Kong they make up 90 per cent.
By letting experienced local officials experiment
with deeper reforms in services inside a tightly sealed
zone, cautious observers hope that risks---for example,
those arising from yuan convertibility---can be con-
tained. Louis Kuijs of RBS, an investment bank, argues
that, when it comes to controlling hot money, the
pilot works "only if there is a very tight border between
the zone and the rest of China." In this view, only
those reforms that work well in the zone will be rolled
out, carefully and slowly, elsewhere.
Nonsense, those hoping for leakage say. They argue
that the whole point of the zone is to spark broader
liberalization that has been stalled for a decade. May
Yan of Barclays investment bank says that, if liber-
alisation inside the zone is not allowed to affect the
rest of the economy, "the SFTZ will be merely like
Qianhai (a special zone near Hong Kong), where there
is not much happening." Such critics want to see
reforms move quickly from the SFTZ to other zones
and the rest of China.
Many observers seem willing to give the pilot zone
time to blossom, however. Perhaps this is because
The next Shenzhen
Continued on Page 31
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