Shanghai FTZ boosts China's economic reforms

Microsoft launched its Xbox One gaming console in China on Monday, ending a 14-year ban during the one-year anniversary of the founding of the China (Shanghai) Pilot Free Trade Zone (FTZ).

The Xbox One, launched in the FTZ, will be the first game console legally available in China since 2000. China set up the FTZ on Sept. 29 last year as a test bed for economic reforms.

Lured by promises of free trade, greater financial openness and fewer government controls on business activities, some 12,000 firms, including more than 3,000 financial institutions, have been established in the 29-square-km FTZ in the past year, more than the number registered in the past 20 years in an area that now forms part of the FTZ.

Officials with the FTZ's administrative committee have advertised that companies can obtain licenses to operate in the zone as soon as four days after applying, compared with an average of 29 days elsewhere in China. Foreign firms are also entitled to a speedy process as long as their area of business does not fall on a "negative list" of off-limit industries.

The zone's import and export volume in the first seven months of this year reached 436.6 billion yuan ( 71 billion U.S. dollars), accounting for 27 percent of that in Shanghai, according to Shanghai customs data.

Microsoft was the first firm to be granted a license to operate in the zone, along with its Chinese counterpart BesTV New Media Co. Ltd., but is not the only one to benefit from the opening-up policies implemented in the FTZ.

John Hu, senior vice president and general manager of U.S. Pharmacopeial Convention China, said his company has benefitted substantially from registering in the zone.

"A bottle of chemical agent used to require at least two weeks to travel from a foreign airport to our Shanghai laboratory," said Hu. "Now it takes only five days, thus cutting import costs by 25 percent."

According to Shanghai customs, the average time for customs clearance inside the FTZ is 39 percent less than outside the zone, cutting clearance costs for enterprises by 10 percent.

The launch of the international board of the Shanghai Gold Exchange on Sept. 18, which allows foreigners access to China's tightly controlled gold market, is sending a strong signal on financial reforms in the FTZ.

The annual lending rate is more than 6 percent in China, but enterprises registered in the zone may borrow renminbi (Chinese currency) capital overseas. The Shanghai International Port (Group) Co. Ltd, has raised more than 10 billion yuan from overseas with an average annual interest rate of 4.91 percent, saving about 180 million yuan in interest expenses, said Chen Xuyuan, the company's chairman.

More reforms can be expected, as the Chinese government announced on Sunday it will lift restrictions on foreign investment for 27 businesses ranging from green tea to civil airplane engines in the Shanghai FTZ.

The Shanghai FTZ will be temporarily exempt from restrictions on foreign investment in industries such as shipping, automobiles, civil aviation and infrastructure development, according to a State Council statement published on Sunday.

Foreign investors in a joint venture shipping agency may exceed a 51-percent stake in the Shanghai FTZ, according to the statement. The current national regulation caps it at 49 percent.

The outstanding market performance and prospects of the Shanghai FTZ have prompted a number of Chinese cities to learn from Shanghai in their opening-up endeavors.

The guidelines for free trade zones in Tianjin Municipality and Guangdong Province will be completed as soon as the end of this year, according to market insiders.

Other cities, including Chengdu, Hefei, Yinchuan and Shenyang, are working to design their own FTZs.

In fact, reforms piloted in the zone have now been applied nationwide.

A total of 21 pilot measures, affecting areas such as business registration, cross-border financing and investment, and customs clearance, have become formal policies applied elsewhere in the country.

"The Shanghai FTZ has boldly explored opening-up," said Bai Ming, a researcher with the Chinese Academy of International Trade and Economic Cooperation.

"The lessons the FTZ has learned can be shared and copied in other parts of China," said Bai, adding that China's reforms can avoid detours and unnecessary errors by learning from the FTZ's experience.