Frenzy for FTZs by regions may dilute impact of daring reforms
Print Edition
REGIONAL delegates to China’s annual parliamentary session are pushing to have their jurisdictions included in the country’s next batch of free trade zones after three new zones were approved in December.
The race to win the central government’s approval to upgrade existing development areas or set up new FTZs from scratch has been evident during the annual parliamentary sessions, which closed yesterday.
One proposal came from Zhang Qingjun, mayor of Hefei, capital of Anhui Province, who envisions a FTZ connecting three other provincial capitals along the Yangzte River.
The rationale behind the proposed FTZ, according to Zhang, is that the four cities situated along the middle of the Yangtze River face similar development challenges and all aspire to attract more foreign investment.
An inter-provincial FTZ will also help break jurisdictional barriers for China’s central provinces, a move that Zhang says will create a unified market where capital and goods can move with fewer curbs.
Shandong Province also wants to have an FTZ in coastal Qingdao, provincial Governor Guo Shuqing, also former head of China’s securities watchdog, said on the sidelines of the National People’s Congress.
In September 2013, four bonded areas in Shanghai were bundled together into an FTZ that authorities billed as a testing ground for financial liberalization, allowing greater foreign participation in the country’s service sector.
The move to set up FTZs is part of China’s effort to allow market forces to play a decisive role in the economy through greater opening to foreign investments in industries and removing restrictions over capital flows.
Yet the FTZ immediately became a coveted notion for local governments looking for a renewed engine to drive economic growth and respond to the central government’s reform rhetoric.
Even before the Shanghai project was officially launched, word spread that Guangdong Province and Tianjin were also being considered for an FTZ.
At the end of 2014, Tianjin, Fujian Province and Guangdong were selected to be part of the second batch of FTZs, inheriting practices proved successful in Shanghai and tapping their unique geographical and industrial advantages for further experiments.
Authorities also expanded the Shanghai FTZ to include the city’s financial district Lujiazui, where skyscrapers house the country’s securities exchanges and leading financial institutions from home and abroad.
The inclusion of Lujiazui is seen as bringing more financial institutions into the game to test how the country’s financial sector handles loosening capital controls and a freely convertible yuan.
Replay of history
Before regional delegates flocked to Beijing this month for the country’s annual parliamentary sessions, local governments in landlocked Shaanxi, Gansu and Henan provinces also unveiled their ambitions to apply for FTZs at provincial lawmaking sessions.
These announcements have once again fueled speculation that more FTZs will come along, though the central government has not openly endorsed such proposals.
The rush to apply for FTZs is reminiscent of a similar craze over the past two decades to create development zones across the country to attract corporate investment.
Yet analysts cautioned against creating too many FTZs too soon, fearing that the central government’s intention to use FTZs to pioneer more daring reforms will go awry when misinterpreted by local officials as a rebranded excuse to gain more preferential policies.
“A lot of people are still under the misconception that a free trade zone will allow local governments to gain more preferential policies,” said Zong Guoying, a deputy to the National People Congress and Party secretary of Binhai New Area, a development zone that has ceded much of its land to Tianjin’s FTZ.
Zong said FTZs should be a “highland for institutional innovations and reforms” — a popular catchphrase increasingly used by officials to refer to policies currently reserved exclusively for FTZs but must be able to be implemented elsewhere in the country.
At the Shanghai FTZ’s one-year anniversary in September, officials claimed that the zone has pioneered the streamlining of administrative procedures for setting up new companies, eased foreign investment’s entry through a “negative list” approach and promoted cross-border use of the Chinese currency.
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