The Chinese government has urged Shanghai to further simplify customs procedures and liberalize financial markets to spur cross-border cargo and capital flows in the 240 square kilometer Lingang free-trade zone (FTZ), a week after President Xi Jinping’s visit to the city. According to an operating guide on the development of the FTZ, cross-border trading of asset-backed securities and the use of the digital yuan will be conducted on a trial basis in Lingang, China’s first economic testing ground of its kind. The guide also underscored the importance of risk controls to ensure financial stability and cybersecurity. “The guide is compiled to highlight the strategic role of the FTZ and encourage the zone in Shanghai to spearhead some trial programs,” the government said in the guide, which was distributed to relevant authorities. “The Shanghai FTZ will be developed into a demonstration area to promote the nation’s economic reforms,” it said.
The central government allowed Shanghai, dubbed the “dragon head” of China’s economy, to create the FTZ in 2013, envisioning a Hong Kong-style territory where free cross-border capital and commodity flows would be allowed. Technically, the yuan would be fully convertible inside the zone, where foreign investors could also set up businesses such as telecoms and entertainment services providers without investment restrictions. Customs authorities were also supposed to allow the flow of goods unhindered, with zero tariffs on imports. But the leadership backed down on its original plan because of concerns about financial and economic risks. To date, the yuan has not been convertible under the capital account, while goods are still subject to oversight by customs authorities. As President Xi made his first trip to Shanghai since 2020, he ordered local officials to step up efforts to revive the country’s economic growth. He stressed the importance of cutting red tape and simplifying customs processes at the FTZ to facilitate exports and imports, according to Xinhua news agency.
“The FTZ serves as a strategic window for Shanghai to better connect with the global economy,” said Xie Yiqing, Researcher at the Shanghai Academy of Social Sciences. “It is an important territory for further economic reforms. Obviously, reform measures designed for a high degree of openness are required.” The Yangshan deep water port, the world’s biggest terminal for container carriers, is linked to Lingang by the 32 km Donghai Bridge. It handled 24 million 20 TEU last year. In October, Shanghai opened an expansive industrial park focusing on the data industry at the FTZ, as the city pushed forward with its ambitious three-year digital economy blueprint. The International Data Economy Industrial Park is tasked with “implementing safe and orderly cross-border flows of international online data”, according to a policy document unveiled by Lingang officials. China is poised to become the first major economy to launch a sovereign digital currency, with the central bank conducting digital yuan trials in several cities, including Shanghai, the South China Morning Post reports.
The Global Times adds that the plan contains 80 measures in such areas as cross-border data transmission, financial opening-up and international cooperation on artificial intelligence (AI). A number of policies involving labor standards, intellectual property protection and state-owned enterprise reform comply with standards of the Comprehensive Progressive Trans-Pacific Partnership (CPTPP), according to analysts. If the reforms are successful, similar policies could be implemented in other FTZs, paving the way for China's entry to the trans-Pacific trade pact amid a new stage of high-level opening-up, experts said. The measures aim to build a national institutional demonstration zone for opening-up, and to explore new paths and accumulate new experience for comprehensively deepening reform and expanding opening-up. “The measures are quite extensive in terms of the extent of opening-up. They clearly send a positive signal on China's resolve for further opening-up, which is quite important, taking into account the global economic slowdown and complicated geopolitical situation,” Tu Xinquan, Dean of the China Institute for WTO Studies at the University of International Business and Economics in Beijing, told the Global Times.
The Shanghai FTZ, established in September 2013, was the first of its kind in China, and it has been replicated across the country. China has so far established over 20 FTZs.
