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  • Does the New Trade Zone immediately affect the lives of Expats? Or is it still a while away?

    Post by : expatree
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China (Shanghai) Pilot Free Trade Zone kicked off at the end of September 2013. This pilot program was launched with the goal of testing the grounds for the broader national application. The hopes of this reform are to advance the service sector and to further improve the financial significance of the county. These reforms also aim to improve industrial infrastructure, de-leveraging debt and reducing financial support in order to allocate resources more efficiently through a market-like scenario. The idea of a free trade zone within a country is not a novel on in China. In 1980, Shenzhen was dubbed a Special Economic Zone (most commonly known as SEZ or STZ for Special Trade Zones).  The Chinese party always made sure to pilot such reforms in a small area in order to contain any ‘dangerous’ consequences that can affect the rest of the nation.
 
The FTZ has four main goals: zero tariffs on trading products, protecting intellectual rights as well as guaranteeing international standards for working conditions, augment economic fairness and transparency through the reduction of subsidies and preferential aid to specific industries or state-owned enterprises (SOEs), and to liberalize the service industry such as capital accounts. By achieving a more fair market place, there will be a more fair competition across all enterprises be it state owned, private or foreign.
 
The timing of this announcement at the end of July was due to the unveiling which was right before the Chinese National day on the 1st of October. Worldwide, the concept was announced and yet many do not know what the liberalization actually implied. The Shanghai zone was a pilot in freeing the interest rates that were previously in accordance with the central bank rules. Another important part of this pilot is to liberalize the capital account in the long-term which has a major implication on national investments as well as foreign.
 
Nonetheless, the unveiling announcement did not match what the pilot actually launched. When the zone first opened in Shanghai, the interest rates and investments were barely mentioned. Moreover, the only mention of such financial reforms would be more of an experiment where all variables were controlled in order to observe and mitigate the risks. The official statement went on further to explain that rules would be in place as the program progressed over the three year period.
 
When the unveiling occurred, Premier Li Keqiang was present and demonstrated his full support for the new free trade zone, but when the first day of operation came around, he was nowhere to be seen. His commitment to the program was hindered the confidence of the program sending a message of confusion. Perhaps, not even the top management were sure of how to go about the next step thought some of the employees.
 
Most expats as well as national businessmen are more concerned and curious about the implications of this new trade zone. Some are still unsure what will change and how it will affect them. Unfortunately, there is no clear answer at this point as the program is being designed as it progresses. It can take any turn depending on how the government perceives the extent of danger from this liberalization. In addition, recently there was a ‘negative list’ outlining over 200 restrictions on investments in telecommunication as well as broadcasting through different mediums such as cinema, television and cinema. Others included: portal and online gaming investments were still banned, banking and insurance investment would have restrictions and foreign auto firms could only have a maximum of a 50% share in a joint venture. Although placed this year, management explained that these restrictions will be visited and revised again next year.
 
Regardless of the long list of restrictions, other regions or provinces are still in hope of attaining a free zone for themselves. There are some critics that accuse this zone to be a real estate sham in order to spike prices in certain areas. Although real estate did just that nearby the zone, foreign investment in luxury real estate or top valued projects is prohibited. This zone has also improves the share prices of the companies that are assumed to benefit from this influx of investment. In particular, the companies located in the industrial zone of Shanghai.
 
In conclusion, the pilot for the new economic zone in Shanghai with its restrictions offers China the opportunity to begin an open economy at a macroeconomic level while maintaining control of all variables, risks and results. This offers a perfect testing ground for innovative systems within national and international competition.
 
Date:2013-10-25 09:07:48
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