It takes time for benefits of FTZ to emerge

Free market pilot program could still be model for other cities

The China (Shanghai) Pilot Free Trade Zone (FTZ) will celebrate its first anniversary Monday, making now a good time to go over what the pilot program has accomplished and what possibilities those accomplishments hold for the rest of the country.

The FTZ was created as a laboratory for extensive financial reforms in China. Whether it succeeds or fails, it could provide a blueprint for market reforms around the country.

Although there has been some progress in the FTZ, some experts have said the pace of the reforms has been slow, particularly in the financial sector. However, it has only been one year since the FTZ opened, insufficient time for the positive effects of the reforms to emerge. In addition, it takes time to institute the reforms because many require the approval of multiple government departments.

Nonetheless, these obstacles won't undermine confidence in the FTZ's development. On September 18, Premier Li Keqiang wrapped up an official tour of the FTZ with discussion with company representatives. He said the policymakers need to do more research and make the market more open and transparent, according to media reports.

Li also said that the FTZ has a bright future.

Obviously, Li's remarks gave a boost to investor sentiment about the zone. In fact, in the past year, the FTZ has done some explorations into government management that is positive and possible for other cities to copy.

For instance, the FTZ published a "negative list" the day after it opened. The Shanghai municipal government released a trimmed-down version on July 1.

The FTZ's list showed all of the sectors banned for foreign companies. By shortening it, the government made more room for foreign investors in China. During his visit, Li called for the government to further cut the list.

This kind of management helps transform the government's role in the market to make its governance more transparent and fair. Jing'an district has piloted the management model since July 1. Reports said it's possible that the model will be expanded to entire city.

Along with the partial management model, the Shanghai FTZ is also likely to be copied by other cities. So the Shanghai FTZ could serve as a model for other FTZs in China.

Currently, Tianjin and Guangdong Province are both reportedly planning to establish their own FTZs. Anhui Province has reportedly set up a pilot program, and wants its provincial capital, Hefei, and two other cities, Wuhu and Maanshan, to offer tax breaks and supervising policies for international logistics and manufacturing companies.

The FTZ has brought other benefits as well. On September 18, the Shanghai Gold Exchange launched an international gold trade board in the zone in an effort to give China more influence over gold prices.

In addition, the Shanghai municipal government released guidelines on September 15 that seek to make the Shanghai FTZ the place with the most open capital markets in China. The Shanghai FTZ will further open up its capital markets in the future in areas including currency liberalization, market-oriented interest rates and free trade.

Shanghai has also benefited from the friendly environment for finance. According to Shanghai authorities, there were 133 financial institutions, including securities, fund and futures companies in Shanghai at the end of August, accounting for nearly 25 percent of the country's total.

Just like Li said during his visit to the FTZ, Shanghai has a bright future. Let's wait for the FTZ to send more positive signals about financial reforms around the country.