Shanghai FTZ ready to spread its model nationwide

The China (Shanghai) Pilot Free Trade Zone will name the first institutions that can replicate its model nationwide in the fourth quarter, a senior official of the zone said on Monday.

The aim is to boost interest and push reforms. It's a top priority for the zone that opened in September, Jian Danian, deputy director of the China (Shanghai) Pilot Free Trade Zone Administration, said.

"It is the very first task for the zone to roll out a string of new institutions and policies that can be applied in other parts of the nation," Jian told reporters on the sidelines of the Shanghai Forum at Fudan University.

The zone's administration office may turn to some 30 new institutions to facilitate trade and liberalize the financial sector. The project aims to go national, Jian said.

An FTZ regulation is expected to be rolled out by the end of this year. The rule, together with the emerging proposals, is still subject to approval by various departments in the central government.

Along with the release of such policies is the modification of a negative list, an administrative approach taken by the zone that only lists restricted and prohibited projects for foreign investment.

There are 190 specific bans on the negative list. That will be shortened by a third in 2014. It indicates Shanghai's determination to deepen reform, Shanghai Vice-mayor Tu Guangshao said earlier this month.

Jian said the financial infrastructure of the zone has been properly established in terms of liberalization of interest rates, cross-border transaction of the yuan, and reform of a foreign exchange mechanism.

In February, the People's Bank of China fully liberalized interest rates on foreign-currency deposits in the zone, laying the foundation for the deepening of interest-rate liberalization nationwide.

The central bank also clarified rules for companies in the FTZ to borrow yuan from offshore. Third-party payment firms have been allowed to settle payment in yuan for transactions between foreign e-commerce websites and domestic firms and individuals.

In the latest move, the central bank issued regulatory details to monitor cross-border capital flow at the zone by asking financial institutions to establish an accounting system that separate transactions in the zone from those elsewhere in China.

Challenges remain in the implementation and integration of rules, including the coordination between policy makers and financial institutions.

By the end of April, over 17,000 enterprises, including financial services, international trade and garment companies, have registered in the zone.

People have been mulling major changes to happen in the zone, whose progress is largely seen as "quiet" since its grand opening last year, according to a McKinsey & Co report in January.

The only change so far appears to be that companies allowed to invest in the zone will not have to go through an approval process, which is quite "ambiguous", said Gordon Orr, the consultancy's Asia chairman and author of the report.

It is therefore important to take substantial steps by revising the laws and regulations to pursue bolder liberalization in the FTZ, said Graham Mather, chairman of World Free Zone Convention, a London-based NGO.

"The FTZ in Dubai would not have been a success if it strictly abides by the laws of the United Arab Emirates. We need a fast-track, understandable legal regime to be set up," he said.