THE International Business Leaders’ Advisory Council for the Mayor of Shanghai has been making great efforts to support the city’s social and economic development in the past few years. Shanghai Daily talked with Orit Gadiesh, chairman of Bain & Company and chairman of the IBLAC for the 2012-2014 period on her insights and suggestion about the council’s operation and the city’s pilot Free Trade Zone.

You've been a chairman of the IBLAC for three years. What have you learned during that time?

First, let me compliment the Shanghai government on their far sighted yet pragmatic approach to seeking opportunities for improvement. The city has shown over and over again that it can turn exciting and innovative ideas into reality. And the IBLAC has a fantastic membership of distinguished business leaders committed to helping the city realize its true potential on the world stage. So it comes as no surprise that the IBLAC is the envy of many other international cities.

As IBLAC Chairman for the past three years I have had the privilege and the opportunity to work very closely with the Shanghai government in shaping the agenda and discussions of the meeting. I would like to extend my thanks to the other IBLAC members for their dedication to return each year to Shanghai and actively participate in the dialogue for advancing this great city. I can say with pride that the quality of the relationship among the members, IBLAC and the mayors has continued to deepen with every year.

How will pilot reforms in the China (Shanghai) Pilot Free Trade Zone benefit multinational companies?

As we all know the China (Shanghai) Pilot FTZ is a testing ground for some of China’s most important economic initiatives. It ultimately aims to create a more open and market based economy in China — an economy that is set to become the largest in the world by 2020. This includes the creation of a Chinese market where foreign and domestic companies can operate on a level playing field — spurring innovation and competitiveness for both sides on a truly global scale.

We are already seeing in the pilot FTZ the opening up of several strategic industry sectors that were formerly restricted or outrightly banned from foreign investments. In combination with the financial de-regulation that is underway, multinational companies will be able to get more deeply involved in the Chinese economy, and they will be able to do so in a more cost effective and efficient manner.

What advice would you give companies seeking opportunities in the zone?

My strongest advice is that they should be there! They will have to be patient and need to acknowledge that it might take a while for all the opportunities to unfold. The regulatory changes and their implementations move slowly for a reason.

What challenges do you think the zone might face in pushing forward reforms and opening up?

The transition to a more market-based economy is by no means easy. We have seen this successfully implemented in other free trade zones around the globe such as in Singapore or Dubai. But given the sheer size of China’s economy this is a major undertaking. And it involves enormous levels of risks that need to be taken into account. The government is prudent about these risks and I understand why they are doing it in the form of a pilot first. It is clear that while we are seeing a number of striking reform advances today in the pilot FTZ, we will need to see more in the future. The question is how fast these will be implemented.

We have witnessed China’s astounding ability to manage rapid change in the past, as such the expectations for the pilot FTZ are very high. But we also have to keep in mind that China can’t make hasty decisions when the economic fortune and well-being of a whole nation is at stake. The reform must be implemented the right way.

What can Shanghai learn from other FTZs?

Bain & Company’s research on FTZs around the globe shows that successful hubs reduce trade barriers by opening industry sectors to foreign investors, providing an efficient, low cost border administration and creating a foreign investor friendly environment. They also offer modern transportation and communication infrastructure and services. And finally, they ensure a transparent regulatory infrastructure, strong rule of law and intellectual property protection rights.

But most importantly, successful FTZs are no substitute to country-wide trade and investment reforms: We have seen those regions and trade centers perform best where the country’s enabling business environment is already relatively favorable.

How will the zone help Shanghai to become an international financial center?

As the financial capital of China, Shanghai is naturally positioned to become an international financial center.

But what we have seen in our work is that all regionally or globally successful financial centers started with major deregulation efforts of the financial services market, and only then proceeded to grow in influence through innovation in services and products. This required investment into modern infrastructure and communication services as well as the creation of a legal framework that meets high international standards.

The Shanghai FTZ will help accelerate many of these efforts, first and foremost the financial deregulation that — if implemented correctly — will attract foreign and domestic players alike and spur innovation in financial services and products.

China’s latest reform of state-owned enterprises is underway. What can SOE reform bring to Shanghai at a time when the overall economy is slowing down?

Over the past 30 years, the Chinese government has been progressively reforming the operation and management of SOEs. But over the past decade we witnessed a growing share of assets and profits in non-strategic sectors. While revenues — spurred by government investments — continued to grow, profitability of SOEs overall took a hit after the crisis in 2008. This led to a situation where the majority of SOEs today show lower return on assets compared with privately-owned companies.

China’s leadership understood early on the need to increase SOE profitability and their global competitiveness. Shanghai was one of the first local governments to adopt additional guidelines on local SOE reform last December. Today, Shanghai is refocusing SOEs on strategic sectors and is driving consolidation. Additionally, we see a focus on ownership diversification, core asset capital injections and introduction of strategic investors. This will open up SOEs to global talent and knowhow, and with that grow them into more competitive and profitable players.

Bain & Company itself has several offices here — how does Bain see the future of China?

Bain & Company has a long-term commitment to China. We believe there is significant growth and opportunity here and we continue to help our clients — both Chinese companies and multinationals — achieve and exceed their goals. We intend to continue investing in this market. It is one of the most promising in the world.